Selfridges have demanded 3% of the value of each invoice for it to be settled within 60 days. Suppliers were also given the "option" of paying 5% if invoices have to be settled within 21 days.
If this was a struggling brand, desperate for short term cash flow, we might be more understanding, but it's not. This is Selfridges, the face of British retail and giant of the country's busiest shopping street. This month, it posted annual sales of £1bn, but is still squeezing every penny out of its suppliers.
The Forum of Private Business has labelled the change as an "unfair" tactic to increase cash flow at the expense of small businesses and equated it to "putting them between a rock and a hard place."
It appears these arrogant tactics could be part of a worrying trend among department stores. Debenhams caused controversy last year by moving payments from 90 to 120 days after the transaction and forcing suppliers to bear the cost of price cuts.
Looking around, there's more and more evidence of the distressing rise in systems like Selfridges' "settling discount". These practices could pose a real threat to small businesses across Britain if they become common place.
Even John Lewis has been in the middle of it. Earlier this year, the retailer told suppliers they had to pay back up to 5.25% of the money they had made from selling to John Lewis as a "sign of ongoing commitment".
These actions by such big names in retail have huge implications for small businesses and here at Smarta, we know how dangerous it could be for those affected.
The first thing small business should do to avoid these situations is agree specific terms with every client, from big to small, in order to make sure invoices are settled quickly, without any charges.
However, that may not be enough. In the case of Selfridges, the new rules overrode previous agreements. If charges become unavoidable, having a well-managed cash flow will help small businesses survive.
It's essential to ensure you've got enough cash in the reserves to weather the storm of big business decisions and sacrifice as little of your profit as possible. In this example, your business would be 2% of invoice value better off if it could wait 60 days for payment, rather than 21.
Of course, we sincerely hope no small businesses are presented with this problem, and the big names do not continue to squeeze out cashflow from entrepreneurs.
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