Dive Brief:

• Kroger's new 90-day payment policy to suppliers is being met with "extreme displeasure" from the California Fresh Fruit Association and other produce groups whose members say it could cause serious harm, according to The Packer.

• George Radanovich, president of the association, said in a release cited by The Packer that the group was "very disappointed" with Kroger's decision. "Our industry should not and will not stand for attacks like this. The fresh produce industry has been a good partner to Kroger. We hope they will remember that partnership and fix the mess they’ve created," he said.

• Supplier groups are concerned that if they go along with the 90-day policy Kroger is putting in place Aug. 1, they could lose repayment protections under the Perishable Agricultural Commodities Act, which sets maximum 30-day payment terms. The National Association of Perishable Agricultural Receivers is asking Kroger to exempt fresh produce suppliers from the new policy because they're different from suppliers of non-perishable goods.

Dive Insight:

Kroger recently sent a letter to suppliers noting the change in payment terms. The retailer said it was implementing the new policy in order to smooth its cash conversion cycle, more efficiently manage working capital in order to reinvest in the company's business, and to harmonize terms with industry peers.

The company acknowledged the change "involves a modest extension of the average time Kroger will pay invoices" and said it was partnering with Citibank to offer suppliers the option of receiving full invoice payment before the due date in exchange for "a very small discount." As an example, the letter said a $1 million invoice paid within an average of 10 days would have a discount rate of less than 0.72%.

"Use of the early payment tool is optional, and intended to help our long-term business partners with the migration to our new standard payment terms, which are not considered optional to Kroger," the letter added.

However, Matt McInerney, senior executive vice-president for Western Growers, told The Packer that Kroger's discount option isn't what producers are looking for.

"We appreciate the challenge with cash flow and because our margins are so utterly slim and the thought of taking a discount for getting paid ... seems counterintuitive and not necessary," he said.

In the past, extending payment terms may have signaled financial trouble. Kroger is doing relatively well lately, so it's more likely this 90-day policy is a way to make funds available for new initiatives. The retailer, along with Walmart, is also pressuring suppliers by charging penalties for late (and even early) shipments to their warehouses.

According to The New York Times, large food and beverage companies have been implementing longer payment terms as a business strategy. The practice has become more common since 3G Capital purchased Anheuser-Busch in 2008, the newspaper noted. European spirits maker Diageo wants 90 days, while Mondelez, Mars and Kellogg ask for 120 days. The practice frees up capital for other uses, such as restructuring or buying back stock, but it's tough for smaller suppliers that depend on cash flow to keep going.

Even though Kroger said it is willing to be flexible and offer discounts for earlier payment, large retailers are usually in the driver's seat when it comes to payment terms. There isn't much fresh produce suppliers can do about it — except take their products elsewhere.