Saturday 2 February 2019

Paying Suppliers out of Fashion at Peacocks

News that Peacocks, has written to suppliers informing them that the company will take longer to pay its bills underscores the challenge that the governments' small business commissioner and lobbying groups such as the Federation of Small Business face in attempting to change poor payment practices in the UK. It also suggests a troubling and clever approach that large companies might start to use to avoid proper scrutiny of unfair payment terms.

In recent years, there has been a good deal of focus on inequitable and unreasonable payment terms, imposed by large companies on smaller suppliers, especially in retail and construction.  Recently a government select committee report highlighted how late payment was holding back small business growth and leading to business failures.

As a result of such scrutiny and the potential for reputational damage, grocery companies such as Morrisons, Aldi, Tesco and Waitrose reviewed their payment practices and announced faster payments, especially for small suppliers - which are now paid in 14 days by grocers.

The Prompt Payment Code (of which Peacocks is not a member, in contrast to close competitor Primark) requires signatories to pay everyone in under 60 days and to be moving towards payments within 30 days.

The discount clothing chain, which already gave itself a very generous 90 days to pay suppliers will, from now on, take up to 130 days to pay for goods. Managing Director Steve Simpson tried to put a gloss on the news. Focusing on how the company had negotiated a deal with invoice finance company, Tradewind, to get suppliers paid in only 10 days. The catch? A 'very reasonable' fee of 2.25% that the supplier pays to Tradewind to unlock their payment if they don't want to wait for 130 days.

Let's unpick this. A supplier sends some reasonably-priced fashion items to Peacocks, which in turn sells them for cash in its high street stores. Instead of getting paid in a reasonable time by its customer, the supplier must instead go to a finance company to get paid. The finance company takes 2.25% of the invoice value, so the supplier gets 97.75% of their bill paid for the privilege of not having to wait 120 days more for the money. Peacocks pay the finance house the full amount in 120 days time.

In effect the supplier has borrowed money from the finance company for 120 days and paid them interest at 2.25%, which works out to and Annual Percentage Rate (APR) of nearly 8%. If the supplier can access bank finance (eg an overdraft) more cheaply than this, then they’d be better off taking the bank loan or overdraft and waiting for the 120 days and getting paid the full invoice value

No doubt Peacocks will claim that their suppliers are getting paid in 10 days, but they're not are they? They're getting paid in 130 days and borrowing money at 8% a year for 120 days. Could this 'helpful' initiative for suppliers instead be nothing more than a disturbingly clever ruse to hide what in reality are terrible payment terms?

Monday 14 January 2019

Are we just victims?

The issue of late payments is often characterised as a big vs small issue; namely big companies exploiting the weakness or naivety of small companies and hanging on to cash they should be handing out to their suppliers. I’m wondering though whether this is leading to a bit of victim culture in which us small players feel helpless and unable to affect our position. Is there another way of looking at it and is there something we could all do, with very little effort, to help ourselves?

Now notwithstanding the often punitive terms that are rife in certain industries, these aren’t my beef here though they are cynical to say the least, I’m just looking at getting compliance with the terms of payment that are agreed. I’m also not excusing systemic policies where a company actively pursues a programme of avoiding paying to terms; they deserve all the stick that comes their way.  Big guys are supposed to know how to behave and have responsibility to do so. But their systems, designed for their own benefit of course, are often inflexible and need understanding and compliance from suppliers if they are to deliver what the supplier wants ie: correct payment, on time, as promised.

Lets not assume also that its exclusively a big vs small issue here. Small companies are just as likely to shirk their obligations to pay when the pressures on their business are high, or they are just not very competent. 

Whatever the size ratio, there is stuff we can all do to minimise the chances of the other party hanging onto to money that is rightly ours. Its not rocket science, just requires some understanding and diligence, but once its in place it becomes a habit and in most cases you may end up being respected for your professionalism and have your reputation enhanced.

The experts at MCC have encapsulated a lot of this knowledge into a short email-course of bite-size chunks that you can always find time to read and digest in your hectic day. Sign up and just become better at business rather than a victim.

1. The Importance of Good Credit Control
2. Giving Credit is Optional - how much should you give?
3. Are Your Invoices up to Scratch? - your invoice can help get you paid
4. Best Practice to Get Paid on Time - offering strategies to ensure customers pay you
5. Applying Interest and Compensation to Overdue Invoices - your statutory right
6. What to do if a Customer Goes into Administration
7. How to Spot a Bad Debt Before it Happens

Despite all the things you can do to become a payments expert, if it still doesn’t work you can always get MCC to do it for you, and often at no cost to you. Click here to find out how.