We have in the past pointed out the grave risks that wine producers run if they allow their UK agents to collect customer payments on their behalf. Current economic conditions make it harder to get credit insurance on a distributor’s debts. That is increasingly pushing business done with the larger UK retailers via distributors in the direction of the agency model. But the retailers are very keen to consolidate their supplier bases at the moment. Rather than have hundreds of individual wine producers set up on their systems as suppliers, they prefer to deal with a relatively small number of UK agents as suppliers. Each agent receives payment on behalf of the producers he represents, and it is up him to remit the various amounts due to each of them, less his commission.
Producers may decide to go along with these arrangements, fearing that otherwise they will be de-listed. We have seen instances of this recently where the producer (P) has assumed it will not be a problem, because the agent (A) also does some business with him as a distributor (i.e. buying from P and re-selling) and P has credit insurance for debts owed by A. This could be a big mistake. P‘s credit insurance will usually only cover non-payment of debts for goods sold by P to A. It will not cover default by A in his capacity as P’s agent. The worst case risk is that A collects payment from the customer and then goes into liquidation, without paying what is due to P. That liability will be uninsured, and P will be an unsecured creditor in A’s insolvency.
The amounts involved can be substantial – six or even seven figures. Producers who are in this position need to evaluate the risks properly. There are protective measures they can take, and it essential that they do so.
NB: This is not just a problem for producers. There can also be potential dangers for agents in these arrangements.