Small supplier narrowly escapes disaster after Tesco fails to pay » SMEInsider

Small supplier narrowly escapes disaster after Tesco fails to pay

On the face of it, a £2m deal from the UK’s biggest supermarket sounds like the holy grail for a small supplier. But for dairy-free chocolate makers Moo Free, it quickly turned into a nightmare.

Soon after agreeing to the initial £70,000 order, owners of the Reading-based company sensed that something was amiss with the way that Tesco was dealing with them and decided only to supply and bill for the first 25% of the initial amount.

We started to realise there was something not quite right with our relationship with Tesco and only sent a quarter because we weren’t feeling comfortable,” said co-founder Mike Jessop in an interview. “As it was, they paid us some money, but there was a shortfall of over £6,000 with no explanation why that was.”

Following five months of chase-up emails and assurances from Tesco that the bill payment was on its way, Jessop eventually gave up and instructed his solicitor to issue a winding-up petition, which would have legally forced Tesco into liquidation if they still refused to pay. As soon as the lawyer informed Tesco of this intention, says Jessop, the company paid the bill within two days.

Although Moo Free is a thriving company, the unexpected hole in its cashflow that Tesco’s late payment caused very nearly pushed it out of business, says Jessop.

We are a small business and £6,000 is the staff’s wages for the month,” he explained.

Unsurprisingly, the company has now pulled out if its dealings with Tesco, passing up the rest of the £2m on offer.

It was an amazing deal and people couldn’t believe it when we told them we will not be able to supply them, but it’s the difference between the company surviving and not surviving,” said Jessop, who pointed out that he has never had any payment issues with supermarkets Waitrose and Sainsbury’s, which Moo Free also supplies.

Last week, Tesco’s financial health was under the spotlight when its accounting team was forced to admit to a £250m “black hole” in its profit calculations. The company has described its five-months-late payment to Moo Free as an “administrative error.”