Dive Brief:

• Grocery wholesale cooperative Central Grocers filed for Chapter 11 bankruptcy protection last week after various suppliers demanded overdue payments or more strict terms of payment, The Wall Street Journal reported. 
• Earlier in the week, the wholesaler faced an alliance of four suppliers including Coca Cola, General Mills and Mars Financial Services claiming Central Grocers owed them $1.8 million. Court documents reveal the store owes over $16 million in unsecured payments to 20 suppliers overall.
• To make matters worse, Central Grocers also says current partners imposed "onerous trade terms" following news of illiquidity, further challenging the company's cash flow.

Dive Insight:

When overdue payments get out of hand, they turn from an accounting issue into a supply chain dilemma as cash flows are disrupted along the chain, further threatening operations. Unfortunately for Central Grocers, the company is an example of the impact upstream pressure can have on solvency.

The case is somewhat unique, however: Reports of suppliers getting tough with sellers have recently focused on a larger company facing unhappy, but dependent suppliers.

Sears and Payless Shoesource are recent examples of major retailers struggling to meet terms of payments, but convincing suppliers to keep deliveries coming in order to keep shelves full and not further impact sales. While long-term suppliers may be trapped in a sinking relationship, others cautiously wade into business and — as with any other credit system — impose harsher terms to secure risk.

One reason, as Central Grocers shows, is that suppliers' credits are often unsecured and take longer to be paid off in the case of bankruptcy. It's such a common issue that in the U.K., regulations will now require public payment schedules, to help smaller companies make the case for overdue payments. 

But the tables are flipped with Central Grocers as its main suppliers include independent food behemoths with significant financial and legal weight rather than small apparel factories abroad. In addition to the four mentioned above, the wholesalers' unsecured creditors include the likes of Unilever, Frito Lay, Nestle, Tyson Foods, Kraft Foods and Kelloggs. 

The wholesaler's tale is a cautionary one for many reasons, but one lesson prevails throughout each case: Supplier relations can only go so far, since at some point, bills will be accounted for. How quickly may depend on the power dynamic within the industry, however.