What the New Wal-Mart Storage Fees and Payment Terms Mean for Suppliers Kaitlyn McAvoy - September 16, 2015 8:25 AM | Categories: Accounts Payable, Industry News, Invoicing, Suppliers | Tags: General News, L1 Wal-Mart suppliers don’t appear to be too happy with the retailer’s latest fees and extended payment terms, which could prevent them from being paid for months. Last week, Bloomberg reported some Wal-Mart suppliers are hiring lawyers to defend themselves against having to adhere to the retailer’s terms, which were announced in June. Wal-Mart said it would charge its 10,000 suppliers a fee to use its distribution centers and warehouses and to ensure shelf space in new stores. When it comes to paying its suppliers, Wal-Mart also said that would depend on how quickly the supplier’s inventory moves through its stores. For some, this could mean delays in payments, which could hurt their bottom lines. Do Wal-Mart suppliers have a right to be angry? Is this move by Wal-Mart ordinary among large corporations? We reached out to David Gustin, cofounder and editor of Trade Financing Matters, to help explain the significance of this news. Spend Matters: Are Wal-Marts’ new supplier fees and payment structure that unreasonable? Have other retailers, large corporations, etc., made similar demands? David Gustin: The need for Walmart to continuously feed the lowest price consumerism model drives it to pass warehousing, distribution and other costs to suppliers. Other retailers do it, too, if they have leverage. These fees are nothing new in retail but are new for Walmart. I believe it feels pressured by its commitment to pay higher salaries, which immediately impacts income statement and margins. Sure, you can fight back as a supplier if you are Procter & Gamble or Rubbermaid, but small guys do so at their own peril. SM: What is a typical pay structure and timeline like for a retailer to pay its suppliers? DG: There is no “normal.” You can look at Hackett working capital surveys and find days payable outstanding (DPO) is a wide range for this sector. Much of it relates to its cash conversion cycle and in particular how fast inventory turns. If you are in retail and have quick inventory turns, paying suppliers faster is less of a problem than if inventory or certain products turn slowly. Think of the aftermarket auto parts retail space – people buy brake pads and filters maybe once every 18 months. It's slow turn. Many companies will calculate their accounts payable (A/P) ratio by dividing A/P – including vendor-financed A/P – by inventory. Therefore, it is the percentage of inventory that has not been paid for before it is sold. SM: How do you see this playing out for Wal-Mart? Is this a smart move for the retailer? What are the consequences of these new fees and possible delays in payments? DG: Let’s do a bit of a history lesson with radio-frequency identification (RFID) and Wal-mart. Wal-Mart first went live with RFID in January 2005, after doing pilots at distribution centers in Dallas. Wal-Mart had to totally rethink its RFID strategy, especially the old carton-level mandate approach. It had been challenged to get more suppliers and partners to comply with its RFID mandates from the start. So is passing distribution and warehousing costs and tying payment terms to inventory a “smart” move? It certainly doesn’t come without risks. If Wal-mart is going to continue to play in the lowest cost game, pushing on suppliers to “pass” costs is one solution. Is it the right one? That remains to be seen. What makes this interesting is here we have the Obama administration pushing big corporates to play nice with their supplier base through its SupplierPay program, and here you have Wal-Mart pushing terms out. A change of payments for a smaller supplier can really disrupt their working capital. SM: Would it reasonable for suppliers to want to stop doing business with Wal-Mart because of these new terms? Do you think this would be a good or bad business decision for the supplier? DG: That’s up to the supplier – if Wal-Mart is 50% of your revenue, it may not be wise. How do suppliers push back? I think Wal-Mart was known for hard negotiation, and I understand tying terms to inventory turn, but I would leverage what the government is trying to do with helping the small guys not get pushed around with SupplierPay. SupplierPay guys, are you listening? SM: Final thoughts? DG: This is certainly a sign that retail is going through tough times – changing business models, online commerce, a shrinking middle when it comes to consumer, etc. Perhaps this will be a boon to Wal-Marts’ Supplier Alliance Program – Wal-Mart pushes terms out and banks find a way to fund the invoice without Wal-Mart having any skin in the game. Related ArticlesWal-Mart Stocks Shelves With More Organic Items, Chinese Chicken Now Part of the US Food Supply ChainWal-Mart Fights Against NLRB Complaint, Data Breach at Hotel Chains, Chicago to Regulate Ride-SharingWal-Mart Joins Tomato Supplier Initiative, Hershey to Create 3D Chocolate Printer, End of Net NeutralityPhysician Practice, Meet Wal-Mart -- Your New Largest SupplierWal-Mart -- Backing Away From China to Source Domestically, or a Shifting SKU Mix?Will Wal-Mart Tie Its New Cost Cutting Strategy to Green? And Will Consumers Care? Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email.