Paying suppliers | SHOPFLOOR ANALYSIS
David Morris, UK sales manager for buying group MHK, goes further by saying: “Pro forma invoicing can strangle a business – particularly start- ups. It prevents growth as it is harder to manage the more business you do.” But not all feel the same way. Matt
Stringer, owner of KBB retailer Matthew John Kitchens, in Southampton, says that he likes them because “I don’t want to run on debt. You’re always going to take a deposit for a kitchen, so you should have the money to pay for the goods”.
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, busi ness develop- ment 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 manu- facturer Intrinsic Works, feels that certain brands have an ill-advised app - roach to allocation against credit limits.
When it comes to finances, relationships and being a proven, trusted retailer is critical for it to work
Lucy Gregson, business development director, Callerton Kitchens and Interiors
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.”
Cash flow With the obvious benefits of additional cash flow that a credit account brings, when multiple deliveries happen within a given month, having one, single payment to make at the month-end cuts down the administrative burden. Elizabeth Pantling-Jones MD Lima Kitchens in Milton Keynes agrees, saying that she likes credit accounts mainly for “…cash flow, but they also reduce admin and transaction fees, making the process more efficient.” Callerton’s Gregson agrees saying that they “offer more flexibility for payments and also ordering. It’s easier on both sides to manage minimal payments as opposed to multiple invoice payments. It’s easier to track for all, less admin time, etc, also, for cash flow and arranging mutually beneficial payment terms”.
The alternative to a credit account is of course pro forma invoicing, but this is seen as undesirable for a lot of retailers. For example, Stronge at Jones-Britain says: “Pro forma accounts cause all sorts of headaches when balancing the books.”
December 2022 ·
Over my many years in the industry, I have signed many Service Level Agreements – a topic brought up only last month by Tony Robson, co-owner of London-based retailer, Day True [kbbreview, November, pg20] and skimmed through Terms & Conditions, but only once do I remember them being referred to, and that was by an appliance manufacturer who refused to take a return from my company – the customer could no longer afford the appliance as their husband was very ill – quoting their T&Cs to me and saying that they are “not a sale or return company”. Needless to say some switch-selling training to my sales team, and the subsequent zero sales of the appliance brand for the next few months did the
trick as the supplier came back ‘cap in hand’. A lesson in retailer power, but also a prime example of inappropriate and heavy-handed application of T&Cs, which is sure to ‘switch off’ retailers. But are such contracts effective or just a paper-pushing exercise? “I feel they are about as worthless as the paper they are written on,” admits Callerton’s Gregson. “If there was something reasonable in place that could be utilised when required, then they would benefit but so far, I’ve not seen any SLAs in this industry that stand up. In a previous industry I worked in, SLAs were a standard and taken very seriously. It doesn’t appear to work like that in the kitchen world, which is disappointing as the retailer has SLAs with customers whether they are formally in T&Cs or not. We have to deliver for our customers, but the suppliers don’t have anything in place to deliver for us formally.” As another supplier that used to be a retailer, Sofia Charalambous, director Bathroom Origins, feels that it would be useful to hear her retailers’ requirements and expectations, saying that her bigger customers “give us their T&Cs”, and actually “it’s not about them and us, instead it has to be a more collaborative approach. Suppli- ers and retailers need to be more professional and should get together to work out the pain points. There has to be mutual respect.”
What is the (real) main reason that credit accounts are sought?
Reduces admin
Helps with cashflow Leverage (re: grievances) Other
But, of course, with debt comes the possibility of the retailer delaying and or even refusing to pay invoices for various reasons. Neil Gokcen, co-owner of Birkdale Kitchen Com - pany, agrees that having a debt to the supplier can give leverage, stating that: “They have to fulfil their obligation knowing that it’ll aid getting payment”. But in the case of paying in advance, the situation can be reversed. Stringer at Matthew John states that: “When I’ve paid pro forma, the manufacturers often aren’t interested in fixing issues quickly, and it means that I’ve got no leverage to speed things up.”
Refusing payment
When it comes to buying groups, things can be a little different. Euronics, MHK and NMBS use a central payment system, whereas KBBG and Sirius have the retailers paying the supplier directly. KBBG’s Miller says that central payment can be simpler but reduces leverage: “If a supplier messes up a delivery, the retailer can withhold payment. With central payment systems, the payment would have to be made.”
So, when is it OK to delay payment or refuse to pay? Gregson again: “In my opinion, only if the supplier walks away without resolving an issue. I truly believe in constructive discussions around further issues rather than blankly refusing to pay.”
Hall at Intrinsic
Works agrees saying “It’s OK to refuse or delay payment when there are unresolved issues, but if a supplier is respectful and res ponsible with their goods and services this should never need to come into play”. Birkdale’s Gokcen neatly sum - marises this by saying withheld payment is OK, “if a product or service isn’t ‘doing what it says on the tin’”. But the leverage garnered by delaying or refusing to pay balances, is only one side of the coin. Those retailers used to the benefits of credit accounts but becoming seen as bad-payers, can have limits reduced, or even withdrawn, which can be a
powerful tool for suppliers.
When I’ve paid pro forma, the manufacturers often aren’t interested in fixing issues quickly and I have no leverage to speed it up
Matt Stringer, owner, Matthew John Kitchens
Bathroom Origins’ Charalambous says: “We have a watch list, and we’re increasingly removing credit from bad payers – who use us as an unauthorised overdraft facility – and placing them on pro forma. We don’t tolerate it anymore. If customers don’t pay us, we can’t pay our suppliers.” Hall at Intrinsic Works feels the same, saying: “If someone starts to abuse their credit account, it can be downgraded. Leverage can be applied both ways, goods can be held up if the account is not up to date.” On a similar topic, early settlement discounts are a useful way for suppliers to encourage quick payment. Corlett- Shaw at Roros Hetta says that “early settlement discounts could be more used” and Callerton’s Gregson believes they do work, but adds “they could be a little more generous”. The KBBG’s Miller makes an interesting comparison, saying: “The German brands like early settlement discounts, and it’s woven into the fabric of business. Among the brands we deal with, up to 8% can be applied”. So, what happens when KBB retailers find themselves as suppliers to others in the chain, for example, having trade accounts and contract work of their own? Nathan Lowndes, a kitchen designer at Magnet, points out that trade customers use credit accounts in the same way as many retailers do: “A trader is more likely to use credit for materials until their invoice has been paid in full, so they can settle after the fact and not have to be out of pocket for materials for a job.” Corlett-Shaw says that, “traders are always pushing for extended credit accounts”.
But it’s not just the limits, but the payment periods that become extended, as Matthew John’s Stringer highlights: “When dealing with contract jobs, some contracts are paid 60 days after completion, which is ridiculous”. KBB retailers generally pay for products on credit and their staff, tax and rent in arrears. This can put many into a false cash-rich position, which needs to be borne in mind with cash- reserves kept healthy to protect the business in slower trading periods.
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