MP: Retail payment delays create ‘free capital’ for expansion

Shota Berekashvili, chair of a temporary parliamentary commission studying pricing structures for food, medicines and fuel, has said that worsening payment terms in the distribution sector were effectively providing retail chains with significant additional working capital.

Speaking at a commission hearing, Berekashvili told Dimitri Meskishvili, a representative of the distribution company BD Company, that audit reports indicated payment deadlines had gradually lengthened over the past three years - from 60 days to 75 and then to 90 days.

“This means that retail networks are using suppliers’ money for other purposes,” he said.

Berekashvili noted that extending payment deadlines created new, freely available funds for retailers, enabling expansion and the opening of new stores.

“One could draw that conclusion. If a retail chain has a monthly turnover of 100 million lari and extends its payment term by one day, it frees up 3 million lari in working capital. If the deadline is extended by 10 days, that amounts to 30 million,” he explained.

Responding to a question from the commission chair on whether payment conditions had deteriorated over the past three years, Meskishvili confirmed the trend.

“Of course. I absolutely agree with you - payment terms have worsened year by year,” he said.