UK retailer Peacocks has rejected claims that poor market conditions are behind its decision to make suppliers use a reverse factoring solution which charges them a fee to secure early payment of invoices.
The clothing company had reportedly written to suppliers to increase payment terms from 90 days to 130 days, according to an article published last week in the UK newspaper The Times.
Peacocks also told suppliers they needed to use the finance firm TradeWind, which would allow for payment of invoices within 7-10 days for a fee of 2.25 percent per invoice, the newspaper reported.
When contacted by SCF Briefing, Peacocks refuted claims it was squeezing suppliers, and argued that its decision to move them all on to the Tradewind solution would benefit suppliers and was changing the UK retail industry for the better.
A spokesperson for the retailer said its guarantee to pay suppliers within 7-10 days was “quicker than anyone else on the high street and at better rates than they could access elsewhere”.
“Our relationships with our suppliers are fundamental to the business and we always seek to provide our partners with quick and simple payment,” the spokesperson said.
Criticism of Peacocks comes amid growing concern that large cash-strapped buyers in the UK and across Europe are squeezing their smaller suppliers by extending payment terms or even paying invoices late.
Just a year ago, UK construction firm Carillion collapsed leaving thousands of pounds worth of invoices unpaid which pushed some of its smaller suppliers into insolvency themselves. Some of Carillion’s suppliers had reportedly been given 120-day payment terms by the firm.
Industry bodies such as the UK’s Federation of Small Businesses (FSB) have been spearheading efforts to demand the UK government to take action on late payers. Similar campaigns are taking place across Europe.
In response to The Times story, the FSB tweeted it had “long highlighted that some larger companies exploit the imbalance of power with small suppliers to impose unacceptable terms, exceedingly long payment periods and late payments.”
Peacocks argued that the 2.25 percent fee charged was “significantly” less than the cost of other sources of finance for suppliers – particularly for those companies based in India and Bangladesh where funding costs can be many times higher, the spokesperson added.
The spokesperson said the majority of its suppliers were already using Tradewind and that it had worked with the Germany-headquartered finance company for the last eight years. Moving all suppliers onto the supplier finance system was in order to simplify the invoicing process, the company said.
Tradewind had proposed this extension of payment terms to 130 days, meaning that while suppliers would be paid in 7-10 days by Tradewind, Peacocks would have 130 days to repay the finance company, the retailer explained.
Peacocks has previously run into financial difficulties, when back in 2012 it was saved from imminent collapse by the retailer Edinburgh Woollen Mill which decided to buy the company for an undisclosed sum.
The wider UK retail market is under pressure over the past year with many well-known brands such as department store Debenhams and Marks & Spencer’s reporting a decline in sales in the run-up to Christmas, while the uncertainty surrounding the impact of Brexit has done little to improve conditions.
Tradewind’s Germany office declined to comment on the specifics of its involvement with Peacocks, sending SCF Briefing the following comments in an email.
“We act as an intermediary on both ends of the transaction, managing the flow of funding and collection of payment when due. Though we take great pride in obviating disruptions to cash flow and restoring liquidity for businesses, we respect the privacy of our clients and the relationships they keep with their supply chain partners, so choose not to disclose the particulars of our deals,” it said.
Tradewind rebranded itself last May, changing its name from DS-Concept and widening its offering of financing products, including inventory and structured trade facilities and supply chain finance programmes.