Extended credit terms are key to getting retailers back on track
HIGH POINT — No matter how much product a vendor has ready to ship when the economy turns, it’s no help if retailers can’t buy it, and aging payables will threaten their ability to purchase more goods as conditions improve.
While some larger retailers are naming their own extended payment terms, most stores will face a backlog of past-due bills.
Leather Italia CEO Michael Campbell said that if vendors want to preserve their business moving forward with cash-strapped retailers — and maintain those customers’ credit-worthiness — they need to re-examine terms.
Leather Italia has around 2,700 open accounts at any one time, with receivables for about 30% — mostly larger retailers — managed in-house, the rest through a factoring company. CEO Michael Campbell pointed out that typical net-30 terms in reality result in repayment in around 55 days on average. He said those terms need to be elongated to 60 to 90 days right now.
“If independents are running 55 days now, what do you think that aging will look like once things start back up?” Campbell said. “If a vendor doesn’t extend terms, when retailer does turn back on, they’re already aged 75 days or more. Retailers are caught up in their ‘now;’ they’re worrying about how to pay the light bill and get their employees back.
“There won’t be any way for this industry to start back up if creditors try to headlock everybody.”
Leather Italia already has extended its terms from net 30 to 60 or 90 days on in-house accounts, and Campbell has been going the extra mile with the company’s factoring partner, taking his argument straight to the factor’s risk manager, with positive results.
“I put together a call to action and started having two conference calls a week, providing a measurement of each account over the past year,” Campbell said. “I was able to explain particular retailers’ business, their geography. You have to go to bat for your customers with the factor if you want to preserve that business.”
He added that factoring companies and banks serving the industry should eliminate certain covenants regarding increased term percentage fees and late payment fees. Vendors can help audit current invoice aging, current outstanding balances as a whole, formally request term limit extensions on invoices where necessary, and wrestle down the fees and protect the retailer’s rating.
“I hope our industry has a strong line in the sand here with their factoring partners and banks as retailers need us on this action item like never in the history of the industry,” Campbell said.
Other vendors are addressing their customers’ financial position as well.
Abbyson, for example, has supported key retailers by holding purchase orders, rearranging shipments dates and providing reasonable extended payment terms.
In addition to quick ship on select models and programs, Manwah’s dealer support initiatives include financial assistance with extra dating and holding prices steady, along with continuation of its Buyer Simplicity Program with no tariff surcharges or extra freight costs, along with extended terms.