If you have received notice of an alleged discount of 2.5% on invoices outstanding on 17th December, you will have already calculated the incremental sales you need via Debenhams to cover the cost…?
Workings: (simply substitute your figures below)
Given these unprecedented times, this type of request should be an opportunity to check out the consequences of each customer wanting similar help i.e. if your total UK sales are £50m, a 2.5% ‘one-off’ discount on outstanding invoices would require incremental sales of £3,125k, in a flat-line environment…. However, if all suppliers stand firm on existing agreements, causing some customers to eventually go bust, then perhaps running a ‘what if’ calculation on the financial consequences of a customer going into liquidation should form part of a reassessment of your total relationship with major customers, on the way to fair share negotiation…
Eventually, all suppliers will have to face up to the reality of 'what business they are in', the reward-for-risk balance required to make it worthwhile, with the Debenhams Christmas initiative presenting an opportunity to scope out the options available, before the banks do it for you…
Workings: (simply substitute your figures below)
- Suppose Sales to the customer £2m/annum, average payment period 45 days, i.e. 365/45, i.e. 8 times /year
- Suppose your Net Profit, before tax on customer’s business is 5%
- Average amount outstanding is £250k i.e. £2m/8
- 2.5% of £250k is £6.25k i.e. by allowing an additional 2.5% off invoice, you are giving £6.25k from your net profit, before tax, to the customer
- Therefore, £6.25k/5 x 100 = £125k = incremental sales you require to cover the cost of making an additional investment of £6.25k in the customer…
- Creation of a precedent in terms of similar retrospective demands from customers in the future – ‘remember that new store we opened in ’93?’
- One more step towards ‘common industry practice’ quotable by other retailers requiring similar help from suppliers
- A reminder that in buying and selling, one is dealing with independent legal entities, making what should be legally enforceable agreements…
- A deal is a deal, or should be… i.e. a retrospective demand without consultation undermines an agreement, and should be a trigger for renegotiation, or walkaway…
Given these unprecedented times, this type of request should be an opportunity to check out the consequences of each customer wanting similar help i.e. if your total UK sales are £50m, a 2.5% ‘one-off’ discount on outstanding invoices would require incremental sales of £3,125k, in a flat-line environment…. However, if all suppliers stand firm on existing agreements, causing some customers to eventually go bust, then perhaps running a ‘what if’ calculation on the financial consequences of a customer going into liquidation should form part of a reassessment of your total relationship with major customers, on the way to fair share negotiation…
Eventually, all suppliers will have to face up to the reality of 'what business they are in', the reward-for-risk balance required to make it worthwhile, with the Debenhams Christmas initiative presenting an opportunity to scope out the options available, before the banks do it for you…
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