Showing posts with label trade funding. Show all posts
Showing posts with label trade funding. Show all posts

Tuesday 9 May 2017

Audit-proofing Trade Funding…

With the continuing development of Post-Audit-Recovery (PAR), coupled with the growth in trade funding to over 20% (!) of sales to the customer, GSCOP preventing easy fixes, and the continuing need for major UK retailers to repair greatly diminished bottom lines, it is important that suppliers anticipate the probability that every record of every promotional initiative will be subjected to analysis in terms of ‘plan vs. actual’, up to six years in arrears…

Also, given that suppliers themselves have suffered bottom line erosion via price war pressures, it is vital that companies are not hit in the current year with allowance-demands arising from previous years.

If a supplier’s system can handle such examination without cost, then perhaps no further action may be required. However, for the remaining 98% of suppliers, it may be worth examining some positive aspects of the process.

Essentially, PAR is a post-payment review to identify overpayments to suppliers (and under-collections!). It is not an audit in the traditional sense. Rather it is a control activity designed to assure the integrity of the payment/collection process, and as such, it is clearly a management function and responsibility.

For those in any doubt as to the appeal of the process to retailers, bear in mind that although the customer obviously pays for a PAR analysis, usually on a percentage of recovered funds, all monies so recovered go straight to the bottom line... In other words, PAR is here to stay, especially for increasingly narrow margin retail businesses…

It follows that in the absence of documentary records, even a relatively weak customer has to be given the benefit of any doubt arising from a PAR audit. Whilst this may represent a major threat to the unprepared supplier, it is important to view PAR as a long-overdue and positive development in helping to regulate trading arrangements between supplier and retailer and provide an effective base for ensuring compliance, especially in trade funding.

Approached positively, it can also help to build a stronger relationship with trade partners. Incidentally, it is worth bearing in mind that the same post-audit-recovery process can be applied by suppliers to manage the financial elements of their purchases of materials and services from further up the supply chain.

By taking the initiative in terms of setting and documenting common standards, attempting to clarify process and ensuring accuracy in implementation of initiatives, the supplier can ensure that the resulting system will be easier to manage and audit, apart from contributing to a better return on investment. .

It follows that the NAM/KAM, being closest to negotiated trade funding deals, is in a key  position to help define system parameters and has a direct interest in ensuring compliance at all levels in supplier and retailer organisations.

Such a system, built upon an appropriate level of transparency and trust, will help to avoid disputes in the future, and can result in a seamless integration of trading strategies and an increase in joint profit, fully defensible at any point.

In addition, for both partners, PAR can help to identify opportunities to remove inefficiencies and redundant tasks from a number of cash management processes that cover internal functions and external trading partners.

A further benefit can result from the fact that the introduction of a PAR process can lead to a merging of accounts payable and buying departments, which means that any progress in setting and maintaining PAR standards, can benefit the supplier in terms of on-time payment.

Trade funding budgets now represent too high a proportion of sales to be left exclusively in the hands of the sales department. However, audit-proofing funds expenditure to meet PAR standards can help in retaining a high degree of influence by NAMs/KAMs…

Monday 25 January 2016

SFO Tesco investigation set to conclude this week

According to CityAM, quoting Cantor Fitzgerald’s Mike Dennis, the investigation could be wrapped up this week. Any fine/redress will obviously impact Tesco’s cash position in terms of repayment and re-financing bonds, adding to pressures on the company.

Longer term we believe that the government will legislate re the accounting for trade investment, and probably move to retro-payment based on auditable results. 

This means a move for suppliers to building in KPIs and compliance for every trade initiative, an inevitable and long overdue progression to fair-share dealing....

This development coupled with Tesco’s loss of market share, and unlikelihood of a return to old market dominance, means that suppliers are in a stronger position re negotiation of compliance.

A once-only opportunity for NAMs that are prepared to go all the way…

Wednesday 20 January 2016

Trade Investment Accountability and how Governments will legislate…

Following the Tesco Accounting scandal, a lack of consensus among the UK's major food retailers is detracting from efforts by the Financial Reporting Council (FRC) to improve the way that companies report complex supplier arrangements and will prolong the uneven disclosure of supplier income, according to a new report by Moody’s Investors Service - more here

NAM Implications:
  • The combination of inconsistency and scale of payments involved means that governments will eventually legislate to optimise taxable income
  • It is probable that such legislation will be conservative (small ‘c’), retrospective, i.e. paid after-the-event and based on measurable results,  the only certainty...
  • In other words, all trade investment will specify KPIs, build in compliance, and payments will be withheld until auditable results are available
NAMs and their customers had best prepare for the inevitable…

Wednesday 10 December 2014

UK accounting watchdog warns retailers after Tesco scandal

Britain's Financial Reporting Council (FRC), which polices accountants and is examining how Tesco's error came about, said on Monday that the boards of all retailers and suppliers should provide investors with sufficient information on their accounting policies, especially Commercial Income (i.e. Trade investment).

This is particularly important for NAMs as the watchdog said it would focus on this area when it comes to reviewing audits for 2014 that will be published in 2015.

The FRC said there was no single accounting standard for such disclosures and there is an "absence of well-known industry norms", meaning that auditors have to resort to judgement in most cases.

Given the 20+ ‘buckets’ that suppliers use for trade funding, it might be useful if NAMs simplified and segregated their funding.

‘Supply and Demand’ rewards could provide a useful basis for clarification.  In other words, classifying elements of commercial income as either facilitating supply economies, or optimising consumer demand, might help, but still leaves complexity....

Supply rewards could include:
- Central assortment & listing
- Timely and committed forecasts
- Central credit, settlement terms, and payment
- Returns/write-offs
- Deductions

Demand rewards could include:
- Listings
- 'Appropriate' range/assortment
- Category compliance: shelf space & level, fair-share facings
- Promotional compliance, price support, POS compliance, additional placements/displays
- Minimalising post-audit recoveries
- Sales achievement

It is likely that the SFO-Tesco outcome will result in new auditing procedures aimed at transparency, defensibility and like-with-like 'comparability' in dealing with Commercial Income in retail accounts.

Meanwhile, suppliers can anticipate the changes and possibly avoid major retrospective overhauling of their trade funding process, by taking action to clarify their trade funding process now, while others await the inevitable…