For most of the year, glad tidings of great joy have been in short supply for supermarket suppliers. Extended payment times, new charges and fierce price negotiations with the retailers are just some of the challenges they have had to contend with. Then, suddenly, everything changed. Just as the weather started to get colder, supplier retailer relations began to do the opposite.

Last week, The Grocer revealed Asda had cut payment times to some of its small suppliers to 20 days, a move warmly welcomed by its beneficiaries, and the most visible sign yet of a change in direction by the supermarkets.

This isn't a sudden outbreak of seasonal goodwill. As the sector braces itself for a long and deep recession, the supermarkets have woken up to the fact that some of their suppliers face business failure.

The cash clampdown
In previous years, retailers didn't care whether suppliers failed as there were always others that could pick up the slack. This year, however, things are different. In several key sectors there are too few suppliers remaining for supermarkets to let them go to the wall. As a result, the supermarkets are faced with the very real prospect of empty supermarket shelves - unless they offer suppliers greater support. But how far can - and should - they go?

Asda has been tight-lipped about the number of suppliers who will benefit from the revised terms.

However, analysts describe it as an important gesture. "This was the year's first positive sign of supplier support," says Catalyst Corporate Finance analyst, Simon Peacock. "Small businesses are having a particular problem renewing overdrafts or are facing more onerous terms and do tend not to have a lot of cash, so this will be welcome. Payment time makes a big difference to working capital."

The average payment time has increased over the past decade. At 45 days, Sainsbury's has the longest. Asda's 20-day promise looks a good deal when compared with its typical 30 to 40 day payment time. Morrisons tends to pay in 34 days and Tesco in 35, although M&S trumps them all at 18 to 25 days.

Though other retailers have yet to follow Asda's lead, suppliers have reported improvements in negotiations with Tesco over marketing charges requested earlier in the year. Other retailers are understood to have agreed improved terms with some suppliers. A spokeswoman for one multiple said her chain was amenable to requests to improve trading terms for suppliers who could demonstrate need.

Cutting payment times is the best way to support suppliers and prevent company failure in a cash crisis such as this one, says Duncan Swift, head of food and agribusiness at accountancy firm, Grant Thornton. Retailers could also consider suspending marketing and promotions charges or renegotiating on price, particularly to importers facing huge price volatility due to currency fluctuation.

No-one expects retailers to improve terms out of the goodness of their hearts. However, where once supermarkets could let suppliers fail, in some sectors there are now only three or four major suppliers, according to the experts. If one of these folds, retailers risk being "held to ransom" on price and terms by the remaining suppliers - assuming they have the capacity to make up the shortfall, warns one senior retail figure.

"In many areas, there's no longer the supply base in place for retailers to be blasé about supplier failure," he says. "Fresh fruit and veg, poultry and red meat are now quite consolidated - and for some of the global players, the UK is not a vital market. If the price and terms aren't right, they'll walk away."

Festive timing
The timing of this sea change is no coincidence. In the run-up to Christmas there is no time or capacity to switch supply chain. One analyst suggests retailers may be "easing suppliers to the 31st December finish line" despite concerns about viability in the new year. Retailers are able to "cram" quality and sourcing checks into two weeks if need be, and in some situations it will still be the best course of action for retailers to switch suppliers in areas where alternative supply is available, he adds.

In sectors where supermarket strategy is better served by support rather than switching risk sharing is key, says the retail expert. "Responsible retailing in this environment is about sharing risk more than raising prices," he says. "It's not just that the retailer itself will suffer, but when businesses fail, thousands of people can lose their jobs. If that's avoidable, then it's the right course of action to take appropriate steps."

Limiting risks
Risk-sharing measures could include cutting charges for waste, especially over the Christmas period when opinion is divided over the strength and volumes of trade expected. Other steps include taking currency into consideration in pricing negotiations. If retailers don't do this, some suppliers may under order stock rather than trade at a loss, leading to empty or thinly-stocked shelves, says one analyst.

The cost to the retailers has to be weighed against the potential risks of losing key suppliers. Grant Thornton has estimated that for the big four retailers to cut average payment times to ten days it would require an additional £5.5bn in working capital.

"The big four could manage this, though they would have to restructure their capital to make it possible," says Swift. "But as they're solvent, this would be achievable. Cutting payment times is vital in a downturn like this, as cash is what oils the business process. If you don't have cash from your customers, or from the banks, your business seizes up and you risk failure."

Multiple pressures
Suppliers' working capital has been squeezed from all sides. Retailer moves to extend payment times earlier this year increased suppliers' working capital requirements just as the cost of borrowing rose sharply, and overdraft facilities were reduced or withdrawn.

Previous schemes that purported to improve trading terms were largely ineffectual, claims Swift, singling out early payment schemes such as Asda's 'pay me early' and Sainsbury's early payment deal. "These schemes are somewhat grotesque," he says. "Trusted suppliers endure ever-extending payment times, then for 'early' payment are charged interest or asked for a discount. The poor supplier is left between a rock and a hard place - does he pay for an overdraft or pay interest to get early payment?"

The latest noises from the retailers seem to signal a more concerted effort to help suppliers. However, those hoping for a new era in supplier retailer relations may be disappointed. Though most analysts agree retailers will try and support key suppliers and are extremely unlikely to continue turning the screw, few think the love in will last. "In the long run, it's survival of the fittest," says Peacock.

"Assuming there are enough companies in a sector, retailers will allow suppliers to fail, though it is never in their interests to push companies into insolvency. In time, I'm sure any cuts in payment times will be reversed."