Showing posts with label settlement discount. Show all posts
Showing posts with label settlement discount. Show all posts

Monday, 22 April 2013

What if consumers demanded supplier trading-terms from retailers?

An article on retailers' treatment of suppliers in today's Independent* introduces an idea that may hold the key to achieving fair-share treatment in supplier-retailer relationships.

Suppose consumers began to modify their shopping behaviour as follows:
  • Telling the shop staff they are happy with the price, but need a 5% settlement discount to pay at point-of-purchase...
  • Demanding a retro-rebate on goods purchased from the store six months previously...
  • Requesting an advertising allowance to carry the store's shopping bag home...
  • Applying a deductions' allowance for unbudgeted delays at the checkout, low on-shelf availability, 'cold' bread at the bakery, unhelpful staff...
  • Expecting a contract allowance for buying a jar of own-label coffee every week for a year...
  • Offering to buy a product's all five variants in exchange for a full range bonus..
  • Seeking a quarterly/yearly bonus for shopping regularly...
  • Requesting a listing-allowance to add the store's own label product to their shopping list...
  • Demanding a de-listing allowance to cover the inconvenience of removing same when tastes change...
  • Making a promo-allowance a condition of 'telling-a-friend'....
  • Requiring a 'customer representative allowance' to encourage family members to tell their friends..
  • Demanding a merchandising allowance for displaying product on the rear window-ledge of the car...
  • Offering to fill the car-boot and all available seats in exchange for a full-load bonus...
  • Requesting a collection-allowance to cover the cost of selecting goods from shelves and transporting to the checkout...
  • Demanding a compensation allowance because the new jumbo-pack does not fit home-storage shelving...
[NAMs are invited to add personal experiences to the above 'shopping list'.....]

Unlikely that consumers would take a pro-active stance against business practices they deem unfair?  So thought a well-known high street coffee chain when their customers discovered their off-shore arrangements to minimise UK corporation tax payments...

Monday, 18 March 2013

Settlement discount - how to negotiate earlier payment

Given the news that HMV and Blockbuster 'owed £490m' to creditors when they collapsed after Christmas, it is important that suppliers attempt to reduce credit periods in unprecedented times. Calculating and explaining the financial benefits of an appropriate discount for earlier payment therefore becomes a required skill in the NAM role…

S:   Given our need for reduced exposure, coupled with your constant requests for lower cost prices, we may be able to help each other out…
B:   Agreed, but I don’t see the exposure on your side? We are one of your biggest customers…
S:   So was HMV in the home entertainments category, yet they went bust ‘overnight’ leaving suppliers to find incremental sales of £4.9bn to cover losses of £490m!
B:   ??
S:   Another time…let’s focus on our trade partnership. As you know our annual sales to you are £14m, and you pay us in 45 days net.
B:   Those are our standard arrangements for all suppliers
S:   Let’s just focus on you and I…. Given the global financial turmoil, our company would feel more comfortable with 25days credit, a reduction of 20 days, and we are prepared to pay to reduce that risk…
B:   How much?
S:   Great you find it interesting… Let me work you through the calculation…
B:   Convince me…
S:   At the moment you pay us 365/45 times a year, i.e. 8 times a year, meaning you owe us £1,7m at any time… (i.e. £14m/8 = £1.7m)
B:   So?
S:   We want you to pay us 365/25 times a year, i.e. 14.6 times a year, meaning you owe us £0.96m at any time…(i.e. £14m/14.6 = £0.96m), a reduction of 20 days
B:   We would need a big discount for 20 days…
S:   I thought the same, until I worked up the numbers.  Let me show you…
B:   I have another meeting in five minutes..
S:   Won’t take that long. At 45 days you owe us £1.7m, and at 25 days the amount you owe is £0.96m, a difference of £0.74m
B:   Like I said, I’m busy…
S:   Say the cost of borrowing is 9% interest per year, so the cost of borrowing £0.74m for a year is £0.067m
B:   Where is this heading?
S:   I am trying to show you how little you need off invoice to beat 9% interest on your money…
B:   OK, another minute…
S:   That £0.067m represents 0.5% of our annual sales to you i.e. £0.067/ £14.0m x 100 = 0.5%
B:   ??
S:   In other words, 0.5% off invoice is equivalent to an interest rate of 9% per annum on your money!
Buyer:             Run that by me again?
SuperNAM:    No problem, and I’ll leave you a couple of slides to talk it through with your finance guys…

Adventures of SuperNAM (17)