Watery is a national supplier of bottled water. It has significant market share in retail grocery and catering. Competition from other brands is intense. Caterbest, a contract caterer with numerous outlets in most major cities, is among its clients. The contract catering sector is also extremely competitive and Caterbest is presently the eighth largest, at about twenty per cent of the size of the market leader. It is expanding by an ambitious acquisition programme of small local contract caterers. It intends to be in the top three catering companies in five years.
Watery is organised around ten regional distribution centres. These centres bottle and distribute Watery water products in their own regions. The marketing strategy, branding, pricing and invoicing of Watery is controlled nationally. Regional centres deliver bottled water and send copies of the delivery notes to national headquarters. All clients are invoiced by head office, which receives payments direct, reconciles the amounts received with the amounts owed from the delivery notes, and processes the accounts through its central computer. A ‘suspense account’ operates into which amounts paid by Caterbest, that cannot be reconciled with the Watery invoices, are deposited.
A similar arrangement operates at Caterbest with their local staff, who operate catering facilities on their clients' premises, sending to head office reports of the Watery products they receive. When Caterbest receives invoices from Watery it reconciles these with the value of the products their sites have received, consolidates the amounts owing and issues payment orders to Watery.
The Financial Director of Watery reported to the Managing Director that a serious discrepancy had arisen between what Caterbest had paid in the last seven months and what they had been invoiced, to the amount of £120000. She claimed she had made several representations to Caterbest's senior management over several months, but her phone calls and e-mails proved to be fruitless, with Caterbest denying that they owed Watery anything like £120000.
She recommended that her MD should intervene with Caterbest's MD, as the amount outstanding must be reported to the Board. The annual contract value of Caterbest to Watery was £2.2 million, equating to an annual net profit of £200000. She also reported that Caterbest had threatened to cancel their contract with Watery unless the disputed claim was dropped. She felt that the Caterbest contract should be suspended if Watery did not receive the money owed.