Paying suppliers when products are delayed
As a retailer, paying suppliers is a standard aspect of the day-to-day running of your business, but what happens if products are delayed? Toby Griffin investigates the various options in place to help you manage your payments and asks whether service level agreements could help level the playing field?
Back in September I attended the KBSA conference and one of the highlights was a lively discussion that ensued when a panel of –mostly – independent KBB retailers were asked for their thoughts on stock issues and supplier failings.
With all of the retailers on the panel rightly bemoaning the lack of communication and let-downs by suppliers over the last year or so, it was suggested some sort of penalty should be put on suppliers for failing to meet reasonable performance standards.
Interestingly though, Dawn Short, MD of Callerton – and the only supplier taking part in the discussion – rightly pointed out that her company had commonly been let down by many of her suppliers, with an absence of materials and information being rife, and causing untold delays and hassle.
It seems then that while retailers are playing ‘piggy in the middle’ between customers and suppliers, suppliers too are stuck between their own suppliers and retailers. We may not have all been in the same boat, but we’ve all been in the same storm.
So, with supplier-retailer stresses at an all-time high, with talk of financial redress for failings, it made me wonder how credit accounts, contracts, service level agreements (SLAs), terms and conditions agreements (T&Cs), early settlement discounts and payment terms are currently used, and how effective they all are in managing contractual relationships.
With a variety of functions, I was interested to find out whether the role of credit accounts in the KBB sector was to decrease the administrative burden, help with cash flow, act as a form of leverage in the case of grievances and disputes, or something else.
To kick off the conversation, I posted a poll on LinkedIn, asking the question: What is the (real) main reason that credit accounts are sought?
Although I expected cash flow to be the most popular answer, the fact it took two-thirds of the vote was a surprise. Although it seems that this can depend on a number of factors including the macroeconomic situation, seasonality, etc. According to Steve Root of Roots KBB, in Faversham, his motivations for wanting credit accounts have changed over the years.
“Today credit accounts are purely for admin purposes,” Root says. “But when we started the business 24 years ago, it was about cash flow.”
Understanding that turnover is vanity and profit is sanity, but cash is reality, it seems that most retailers are always grateful for the extra money in their bank. Speaking to Lucy Corlett-Shaw, country manager for Finnish extractor hood brand, Roros Hetta (and former buyer for Magnet), she sees the supplier-retailer relationship from both sides. “It’s not just retailers that feel pressure on cash flow. Their suppliers and their suppliers do too,” she says. “At all times, cash protection is the name of the game.”
But Dan Stronge, MD of kitchen retailer Jones-Britain, based in East Sussex remarks: “Yes it [credit accounts] does help with managing cash flow, but it’s temporary and I think it’s a false economy. You’ve got to pay the bill at some point.”
For others, like Bill Miller, MD of buying group KBBG UK, the offering of credit accounts has become something of a habit. “There is an element of tradition with credit accounts,” he says, “and an expectation that a new supplier needs to offer a credit account.”
It seems that suppliers have become inadvertent overdraft facility providers to retailers. Explaining why this has become the case, Miller continues: “With bigger marginal profits, and generally higher turnovers, during lean times the supplier can sometimes act as a banker/investor to their customers.”
It’s one thing to have a credit account, but another to have a suitable credit limit.
Lucy Gregson, business development director of the retailer Callerton Kitchens and Interiors, in Newcastle, believes that limits “need to be there
to be fair to the suppliers who put them in place. When it comes to finances, relationships and being a proven trusted retailer is critical for it to work.”
Interestingly Matt Hall, sales manager for bedroom manufacturer Intrinsic Works, feels that certain brands have an ill-advised approach to allocation against credit limits. He believes goods on a lead time should not be included in any credit limit – a sentiment echoed by Corlett-Shaw at Roros Hetta, who says: “Credit limits being vacuumed up by unavailable stock means, by definition, that credit hasn’t been used.”
- Read the full feature, which includes more information about cash Ffow and refusing payments in the December issue of kbbreview.