Negotiating payment terms with malt and hop suppliers

Payment terms are a cash flow tool

Every day between paying for malt and getting paid for the beer is a day your cash is stuck. For a brewery that sells kegs to bars on 30 day credit, paying the maltster in advance can mean funding two months of ingredients from your own pocket.

Here is an illustration with round numbers. If you spend ₹3 lakh a month on ingredients and pay in advance, but bars pay you 45 days after delivery, roughly ₹4.5 lakh of your cash is tied up at any time just to bridge that gap. Moving the supplier to 30 day terms frees about ₹3 lakh of it. Our guide to cash flow in a brewery's first year shows how this fits the wider picture.

Know the usual options

Ingredient suppliers in India commonly work on one of these:

• Full advance. Usual for new customers and imported orders.
• Part advance, balance on delivery. A common step up once you have a history.
• Cash on delivery. Payment when the goods arrive.
• Credit terms. Payment 15, 30 or 45 days after invoice.

Imported hops and malt often involve the supplier paying their own overseas vendor in advance, so their room to give credit is limited. Domestic malt and local distributors usually have more flexibility.

Earn credit before you ask for it

Suppliers give credit to customers who look like low risk. Before you ask, build the evidence. Pay every advance invoice on time for three to six months. Give the supplier an annual volume forecast, even a rough one. Share that your licence is in place and that you are brewing regularly.

Then ask for a specific term, not a vague favour. "Can we move to 30 days from invoice on domestic malt, with a credit limit of two months' typical orders?" is easy to answer. "Can you be flexible?" is not.

Trade something for better terms

Negotiation works best when both sides get something. Things you can offer a supplier:

• A volume commitment for the year, with monthly call-offs.
• Consolidated orders: fewer, larger deliveries are cheaper for them to deliver.
• Being their reference brewery in your region.
• Paying by bank transfer on a fixed day each month, so they can plan their own cash.

Hop contracts are the clearest example. Committing to a year's hop volume at harvest secures varieties that sell out. In return you can ask for staged payments rather than all of it up front.

Early payment discounts can beat credit

Some suppliers offer a discount for paying early, such as 2% off for payment within 10 days. That sounds small. It is not. Giving up 2% to gain 20 extra days of credit is an expensive way to borrow, equal to well over 30% a year.

So if you have the cash, early payment discounts are often the best return on it in the business. If you do not, a longer credit term is worth more than a discount. Do the sum both ways for each supplier before you choose.

Know the law on paying small suppliers

Payment terms work in both directions. If your supplier is a registered micro or small enterprise, Indian law limits how long a buyer can take to pay: 45 days at most where credit is agreed, with interest due on late payment. Tax rules also now restrict the deduction for amounts owed to such suppliers beyond that limit. Rules can change, so check the current position with your accountant.

For a small brewery, this matters most when you are the customer of a small local supplier, such as a packaging printer or a glycol service firm. Pay them on time. It keeps you compliant and keeps them willing to help on the day you need a rush job.

Handle problems without breaking the terms

Good terms survive the first dispute only if you handle it well. When a delivery arrives short or out of specification, for example malt with moisture above the certificate or a damaged pallet of hops, record it on the day with photos and the delivery note. Tell the supplier in writing within a day or two.

Then hold back payment only for the disputed part, not the whole invoice. Paying the undisputed amount on time keeps your record clean and shows good faith. Withholding everything turns a quality question into a credit problem. Suppliers remember which customers do that.

Put the terms in writing

Whatever you agree, put it in a short written supply agreement or at least an email both sides confirm. It should state the payment term, credit limit, delivery lead time, what happens if a delivery is late or out of specification and how prices change during the year. Our guide on keeping a brewery running when a supplier fails covers what else belongs in it.

Then pay exactly on the agreed day. Your payment record is the strongest card you hold when you ask for better terms next year. Matching supplier terms to customer terms is a core part of brewery cash planning.

Common questions

What payment terms do malt suppliers usually give?

New customers often pay in advance. After a few months of on-time payments, part advance or 15 to 45 day credit becomes possible, mainly for domestic supply.

Is an early payment discount worth taking?

Usually, if you have the cash. A 2% discount for paying 20 days early is worth well over 30% a year, which beats most other uses of spare cash.

How long can a brewery take to pay a small supplier?

For registered micro and small enterprises, Indian law sets a maximum of 45 days where credit is agreed. Check current rules with your accountant.