Debenhams joins the big squeeze as retailers force cuts and payment delays on suppliers

Textiles: Smaller companies are experiencing cash-flow problems due to their larger counterparts delaying payments

Department store giant Debenhams has been slammed for forcing some of its suppliers to cut their prices by at least two per cent, and even backdating reductions for orders that are already agreed.
Debenhams has hit other suppliers by delaying their payments to 120 days instead of 90.
The squeeze on Britain’s high streets is driving some big retailers to raise the pressure on smaller suppliers to cut prices, increasing the pain of the downturn for those least able to cope, say critics.
Debenhams last week issued a profit warning that led to its shares falling by 14 per cent. It blamed poor weather, in particular snow, for a fall in sales in January. As a result it is predicting pre-tax profits of £120million for the first six months of the year, down from the £130million that analysts were expecting.
Last month, fashion chain Monsoon was fiercely criticised for delaying payment to suppliers from 60 days to 90 days and forcing them to discount their bills by four per cent.
In December last year, mobile phones giant O2, owned by Spain’s Telefonica, ratcheted up payment times from 60 to 90 days to a staggering 180 days.
Late payment and the huge pressure it puts on small businesses is becoming an increasingly vexed issue. Experts estimate that suppliers are waiting for £36billion in outstanding payments.
A survey by Lloyds Banking Group found that 35 per cent of small and medium-sized firms were suffering cash flow problems as a result of larger companies delaying payment.

One supplier told Financial Mail: ‘We are being used like an extension of a retailer’s overdraft facility. It’s a cheap and easy way for them to boost profit margins in the short term. But in the long term all it does is drive suppliers out of business and kill off innovation.’
He said that two years ago Debenhams offered to pay invoices early – but only if suppliers agreed to a price cut.
Last month the Government appointed Christine Tacon as the first Groceries Adjudicator, to ensure suppliers were not bullied into accepting retrospective changes to contracts. But the watchdog’s remit applies only to supermarkets.

Getting tough: Debenhams is pushing for a 2 per cent price cut from suppliers

In January, Business Minister Michael Fallon launched a drive to increase the number of FTSE 100 and 250 companies signed up to the Prompt Payment Code, under which they pledge to stick to agreed payment terms. Since launching the campaign, the number of FTSE 350 companies signed up to the code has risen by more than a third to 132.
However, the code itself has come under criticism, with experts pointing out that there is no requirement for companies that are signed up to pay quickly, only to pay within the time stated. So businesses with payment terms of 180 days could still belong to the code.
In an email sent to a number of suppliers, Debenhams said: ‘There is an expectation that we will get a minimum cost price reduction of two per cent across all ranges, and that this will be retrospectively applied across all orders due for delivery from March 4th 2013 onwards’. It gave firms until last Friday to respond.
Debenhams defended the decision to force some suppliers to offer a discount, as well as the move to 120-day payment.
It said: ‘We work in close partnership with our suppliers and seek to build mutually beneficial long-term relationships with them.
‘Last week one of our buyers wrote to eleven suppliers of bed linen asking for a small discount on current and future orders, reflecting the strong performance of the product categories they  supply. It is not unusual for retailers to ask for improved terms when larger orders are being placed.

Holding back: O2 is delaying payments to suppliers by up to 180 days - increased from 90

Demand: Monsoon is increasing its delay in paying suppliers from 60 to 90 days

‘Since 2007 our standard terms have been 120 days. Where suppliers have not been on these standard terms, we have been gradually moving them on to them.’
While Debenhams has denied that the decision to force suppliers to discount their goods is part of a wider change in strategy or terms, the Forum of Private Business is sceptical.
Spokesman Rob Downes said: ‘Are we to believe this was a one-off by a rogue buyer, or can other small businesses who supply Debenhams with popular lines expect similar underhand treatment in future?
‘Debenhams is keen to stress that this isn’t indicative of any wider policy. But this isn’t a company with a great track record for looking after suppliers by paying promptly.
‘These sound like desperate measures by a firm which only last week announced a huge dip in profits, and quite brazenly now wants to share the pain with suppliers.’