A dairy-free chocolatier was forced to threaten supermarket giant Tesco with a winding-up petition after they failed to pay for part of their order for five months - leaving him without his staff's Christmas wages.

Moo Free Chocolates produce dairy-free and gluten-free confectionery, with an annual turnover of around £1 million.

But when a £2 million order came in from Tesco, co-founder Mike Jessop was understandably excited.

However, as the two companies began to work together on the first £70,000 shipment, he became increasingly concerned, and took the decision to deliver only a quarter of the goods.

Tesco paid part of the amount owed for this, but left a shortfall of around £6,000 - enough to cover Moo Free's staff wages over the Christmas period.

Moo Free were forced to take increasingly severe debt recovery action - eventually leading to the 'nuclear option' of threatening Tesco with a winding-up petition - yet Tesco expected the supplies of confectionery to keep coming throughout the dispute.

Ultimately the threat of being wound up worked, Tesco paid up, and Mr Jessop refused to work with them again.

Mr Jessop told local news publication Get Reading:

"It was an amazing deal and people couldn't believe it when we told them we will not supply them, but it's the difference between the company surviving and not surviving."

The Fallout

The dispute had several impacts, not least of which is the collapse of the companies' supplier agreement and the threat of Tesco being wound up over a £6,000 underpayment.

Moo Free were left without money they were relying on to cover their staff's Christmas wages, and were forced to use company savings from elsewhere to meet this cost.

In turn, this meant they took those funds out of savings that were intended to invest in machinery for the fast-growing firm.

Now they are looking to the future, having secured a £530,000 bank loan to purchase new equipment, and with plans to increase the size of their workforce by a fifth.

Tesco, meanwhile, told Get Reading:

"We understand that timely payment of invoices is important to all our suppliers. Unfortunately, on this occasion, an administrative error meant that we made a mistake. We are sorry for any issues that we might have caused."

It's a salient lesson to small businesses about the risks of relying on one large customer for the bulk of your cash flow - and of what to do when that one customer fails to pay.

Mr Jessop was right to be wary, and took sensible precautions, such as reducing the size of the first shipment and asking the customer to pay for it before any more goods were delivered.

He was also in a strong position as, thanks to the money set aside for machinery, he was able to pay his staff's wages, avoiding being 'held to ransom' by the retailer.

This preparedness in terms of cash flow and risk exposure put him in a strong position to take forceful but reasonable debt recovery action, and ultimately the threat of a winding-up petition was enough to make Tesco wake up and smell the cocoa.

Image by flickr user William Warby licenced under CC BY 2.0