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Suppliers adapt to retailer payment needs

Heath E Combs -- Furniture Today, December 19, 2011

HIGH POINT - The changing credit environment and evolution of how furniture is shipped means thinking differently about how suppliers accept payment and protect themselves from the unexpected.
     For some, creation of new programs servicing a different kind of retailer may require a new way of processing credit, like buying credit protection to secure payment in mixed container programs at sources like Sunny Designs.
     For others, there are more traditional routes like factoring, where a commercial factor essentially buys the invoice from a supplier and collects payment from the retailer, giving suppliers - who pay factors a fee - money immediately for the invoice, creating cash flow for suppliers and helping divert their credit risk.
     For many others, processing payments and risk from retailers is done through in house credit departments, where credit ratings, relationships and reputation often play a factor in the terms that are extended.
     Hokeun Lee, vice president of sales for case goods importer Sunny Designs, said that most of its major accounts pay their invoices in cash.
     Lee said the company used to run some credit in-house and still has a few accounts that are grandfathered into that payment system. But anything over $10,000, the company typically will not handle in-house, Lee said. Lee said that for about three years the company has used credit protection on retailers from Wells Fargo, which guarantees the invoice and does due diligence on financials and cash flow to determine who and how much it covers. Most new accounts use the program.
     Sunny Designs began using the program when it started a mixed container program to help make its product easier to market, Lee said. Through the protection, retailers get a credit line and typically payment is net 30 days on domestic warehouse shipments or net 60 for container orders.
     One reason for using the program is that it can sometimes be hard to explain to dealers new to container orders the details of ordering - for example, that sometimes letters of credit from bank to bank are needed - and that they must be paid for up front, Lee said.
     Typically containers must be paid for before they land at port from overseas, but with two to four customers splitting a mixed container, securing all those payments before the boat arrives is difficult, Lee said.
     "As long as they guaranteed it then we don't have any credit risk and we can flow that container and release it as soon as it arrives," Lee said.
     Bob Roy, CEO of casual dining, home entertainment and occasional importer Jofran, said that credit insurance, which assures payment on credit extended by the supplier, has helped the company continue its goal of borrowing as little money as possible.
     While major firms are insuring less since the credit meltdown, Roy said, credit insurance is still a good way to share risk, giving some or full support for payment of goods to suppliers.
     "The insurance really does provide a solid basis for the granting of credit," he said. "It will never be like the days of yore, when people were insuring some retailers for a quarter of a million dollars ... and they failed within a very short time within each other and a whole lot of companies didn't lose a lot of money on it."
     Major credit insurance firms are also a good source of specific information on the fiscal health of retailers. That may be due to their ability to gather financial information, the withholding of which can hurt retailers, he said.
     "When somebody refuses to give you information it's generally an indication that something is wrong," Roy said. "When (the major firms) ask for it, they frequently get it."
Ray Steele     Ray Steele, co-founder of accent supplier Gail's Accents, said that a growing part of the way retailers pay for furniture today is through credit cards. Steele said that five years ago, few suppliers took payment at the wholesale level with credit cards.
     Today, it's a different story, because the cost to run a credit card can be less for a supplier than the cost of a factoring agreement. Steele added that for some retailers who can't get factored, credit cards are an option and offer big rewards.
     "Retailers realize if you buy $10,000 worth of furniture and you put it on a credit card you're going to get 30days. If you buy $10,000 and it goes through a factor, you get 30 days. Except that with a credit card you collect all the points," he said.
     Chris Chamberlin, director of operations for solid wood casual dining and bedroom manufacturer Conrad Grebel,said that the company has its own credit department and offers terms, typically about30 days. That decision on what terms to offer typically is based on credit references and ratings from organizations such as Lyon Credit Services.
     Conrad Grebel also contacts payables departments of other current vendors of that retailer, considers the communities in which stores are located, how long it typically takes a retailer to pay and a sales representative's familiarity with those retailers' payment habits.
     Chamberlin said that about 90% of the company's payments come by check, typically within the 30 day period, with the remainder wired to its accounts.
     "As long as you set the expectation right up front that you're not going to accept anything beyond 30 days, that there's a certain level of performance you expect from them ... most companies will be great about paying within 30 days," Chamberlin said. "We're just not big enough to absorb getting tied in with someone who would string us out for 60 days or longer."
     Chamberlin said that for retailers struggling with payment, being proactive and communicating with vendors about their situation is best, but doesn't always happen.
     "I think in those cases the retailers that are struggling with payment probably owe a bunch of other people money and the thought of picking up the phone and calling 15 different vendors just is probably overwhelming, so they don't do it."

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