For the second time in the past three years, Debenhams has frustrated its suppliers in the run up to Christmas. The department store chain has asked for a reduction of 1 to 2% on bills in return for paying them 30 to 60 days earlier than their current agreement.
In 2013, Debenhams controversially forced some suppliers to lower their prices by at least 2% just over a week before Christmas. The retailer‘s move was labelled as the “Santa Tax”.
According to The Sunday Telegraph, Debenhams said in a letter that the shorter payment agreement will only last for a set period from November 24 to May 26 next year.
“The working capital benefits associated with early payment are subject to suppliers agreeing an additional discount on the value of the associated invoices”, the letter says.
A spokesperson for Debenhams said that the new agreement is a “completely optional scheme” that was offered in response to demand from the suppliers themselves.
However The Telegraph reported that one supplier, who asked to remain anonymous, said that it felt under pressure to accept the new scheme. “We‘re being asked to shave off the price again,” it said.
The British department store claims that it is attempting to protect its own margins by asking for the discount from its suppliers.
“We are concerned and disappointed by this latest example of poor payment practices from Debenhams. Sadly, it is not the first time we have seen the retail giant behave in this way and would have hoped that, by now, it would have improved its behaviour,” said Mike Cherry, Policy Director at the Federation of Small Businesses.
“The FSB has consistently condemned the practices of some large companies towards their supply chains. Small businesses rely on the integrity of their bigger customers when it comes to honouring agreed contracts and paying up in full and on time. They often lack the clout, funds or time to seek adequate redress in these circumstances.”
Earlier this year, Tesco‘s Chief Exec Dave Lewis announced that the grocer would reduce its payment terms for suppliers from 45 days to 14 days in an attempt to maintain transparency in the business. The 14-day terms are lower than the general food industry standard of 28 days.
From April 2016, the government also has plans to force big businesses to publicly publish their standard payment terms.
Debenhams has been experiencing turbulence in recent months, extenuated by the departure of longstanding CEO Michael Sharp, who exited the business after 25 years of service.