When retailers and suppliers talk about partnership and collaboration the focus tends to be on two areas: merchandising and marketing initiatives that drive sales or operational matters of making sure products are in the right place at the right time. Overlooked in these conversations is how and when retailers make — or don't make — payments to their trading partners.
Retailer payment practices can vary widely and though suppliers seldom discuss the issue publicly they are quick to fume privately about terms, fees, chargebacks and invoicing practices. To explore what is arguably the most important aspect of a retailer and supplier relationship, two professors with the Center for Market Advantage at Rutgers Business School surveyed 630 supplier company representatives knowledgeable about the procurement and payment practices of their retailing clients. The first-of-its-kind study was conducted by Rudolf Leuschner, an assistant professor in the Rutgers department of supply chain management, and Sengun (Shen) Yeniyurt, an associate professor in the university's marketing department. The pair created a payment practices satisfaction index by exploring seven key areas with survey participants asked to assign a ranking of one to five based on their level of satisfaction with seven payment practices metric that included:
- Length of payment terms.
- Track record, or history, of on-time payments.
- Invoice adjustments such as reserves, charges and holds.
- Visibility of approved invoices.
- Payment dispute resolution.
- Offering of alternative funding options.
- Overall satisfaction with retailer's payment process.
The study sought to examine the 50 largest U.S. retailers, however four retailers were excluded (Seven Eleven, Health Mart Systems, L Brands and Bi-Lo) from the ranking because the researchers were unable to obtain an adequate number of supplier responses.
Retailer payment practices can vary widely and though suppliers seldom discuss the issue publicly they are quick to fume privately about terms, fees, chargebacks and invoicing practices.
According to Leuschner and Yeniyurt, it has become increasingly common in several industries to increase the length of the payment terms. Traditionally, the norm was 2/10 net 30, meaning the full payment was due 30 days after receipt of the invoice, with a two percent early-pay discount for payments within 10 days. Now, some companies have extended terms to as long as 120 days, according to the researchers.
"Within the retail industry we see a shift towards longer payment terms, although there are still a number of retailers paying in 30 or 45 days. This lengthening of the payment terms has obvious advantages for buyers as it expands accounts payables and increases cash on hand. However, it can put great stress on suppliers if not managed carefully," according to the study. "Additionally, some large firms are working on shortening the accounts receivable cycle. They tend to do this at the same time that buying firms are working to extend their payables, which creates tension between the buying firms and their suppliers."