Those that offer biggest discounts get paid quicker under department store chain’s bidding war plan.
Debenhams is paying some of its suppliers early after they competed in an auction-style bidding war to offer discounts in return for shorter terms as part of an innovative scheme to help them offset cash flow issues caused by rocketing commodity prices.
Under the scheme, suppliers were asked to submit the highest discount they were prepared to offer in return for 30 days being shaved off their existing payment terms. Debenhams has ring-fenced a pot of money to fund the scheme, which will apply to invoices due to be settled between April 21 and September 30. The cash pot is limited though, and only those offering the deepest discount will “win” the right to be paid early.
Debenhams introduced the scheme last month in a letter sent to suppliers from finance director Chris Woodhouse, who wrote that Debenhams had received “a number of requests” from suppliers for early payment of invoices or reduced payment terms. Suppliers are understood to have asked the department store chain for cash early to help them finance forward booking of their orders of fabrics such as cotton, the prices of which have spiralled.
Normally retailers would impose a prescribed discount of their choosing to reduce terms rather than putting it in the hands of suppliers.
Woodhouse added in the letter: “We have limited funds available for the scheme. Suppliers will therefore be accepted onto the scheme based upon the level of discount they are prepared to commit to, with the highest offers of discount taking priority.”
Debenhams is understood to have closed the “online auction” process, but declined to comment to Drapers on how many suppliers had applied for the discount, how many had been successful or whether it would run the auction-style initiative again.
Suppliers contacted by Drapers said they had not seen this style of payment negotiation before.
One said many suppliers would already have a strategy in place, including a potential discount figure in case a situation should arise where they needed to negotiate terms.
He said: “It could be viewed as a positive thing for suppliers. Debenhams is providing an extra service.” Suppliers with cash flow issues, exacerbated by rising input prices, may be more likely to offer high discounts.
However, a third supplier said the scheme was designed to serve Debenhams’ interests. He said: “You could ask why isn’t Debenhams paying earlier in the first case? [The scheme] will help it pay off its debts early. It will borrow money at ‘x’ per cent and then get money in at ‘x’ per cent higher from suppliers.”
Debenhams chief executive Rob Templeman said the initiative was “innovative and supportive of suppliers”. He added: “It also gives the opportunity for our suppliers to lock in some discounts on raw materials.”