Argos and Homebase have joined a list of leading retailers including Selfridges to put pressure on their supply chains with rebate demands. The two big names, which are owned by Home Retail Group, sent out letters to suppliers stating that the 2% turnover rebate will affect all orders made from 1 March.
What this 2% turnover rebate means is that suppliers of Argos and Homebase will get paid 2% less than their agreed price. That could mean up to thousands of pounds being wiped from cashflow budgets, leaving entrepreneurs scrambling to recover the funds they need to grow their businesses.
This will hit some small businesses harder than others. It’s those with upcoming cashflows that are already being stretched that will be especially affected.
Argos and Homebase already have a bad reputation when it comes to paying suppliers. Home Retail Group’s annual report showed it takes 60 days to pay its supply chain, one of the longest waits in the retail industry.
This change in supply agreements come as Argos starts a £300m turnaround programme. The plan includes installing click-and-collect points and replacing its famous laminate catalogue with digital touch screens.
David Robinson, commercial director of Argos, said, "As we travel along this journey, it is vital that both Argos and its suppliers play their part in supporting this transformation, and hence with effect from 1 March 2014, we will be amending our standard trading terms to include an additional 2% turnover rebate for orders placed on or after that date."
The Forum of Private Business has joined call to the Government to stop retailers using rebate schemes.
Alexander Jackman, head of policy at the FPB, said, "Small businesses are some of the great innovators in the UK. Sadly, their customers higher up the supply chain are increasingly innovative in methods to extract more money from them. Whilst interfering in private sector contracts is a tricky business, we are urging Government to find a way to stop these damaging rebate schemes.”
When you’re dealing with big name clients, make sure you know exactly what the terms of your contract are and how much you will end up being paid. Small businesses need to create precise cashflow predications, and the only way to do that is to know what money is coming in and when it will be in your account.
If you’re not an expert when it comes to contracts or accounting, we definitely recommend you get someone in to help you out when it comes to signing agreements with big clients.
For more on how to manage your money, catch up with the king of cashflow here.