Cash Management

Mutual Suspicion

Cash-strapped suppliers and their credit-crunched clients are increasingly looking to renegotiate terms.
Jason KaraianMarch 2, 2009

As cash-flow problems beset companies in a wide range of sectors, firms up and down supply chains are locked in a contest to see which can squeeze the other most.

At Kesa, an Anglo-French electrical retailer, companies supplying its Comet subsidiary in the UK are being asked for fees of more than £15,000 (€16,600) this year for their products to be displayed in shops. Confident in its ability to cajole suppliers to accept the changes, Kesa’s outgoing CEO, Jean-Noël Labroue, noted on a recent conference call that “one of our historical and cultural skills is supply-chain management…which is very helpful in this complicated period.”

Two of Europe’s largest companies, retailer Tesco and oil group BP, also recently announced plans to renegotiate terms with suppliers. Citing falling commodity prices, Tesco CEO Sir Terry Leahy said, “Lower prices need to be fed into the supply chain,” while BP chief Tony Hayward was looking to “accelerate that flow-through as rapidly as possible.” Given the size of these firms, this news will affect thousands of companies, large and small.

And it’s not only suppliers that are under strain. There is plenty of strife on the buyers’ side, with many continuing to blame credit insurers for their woes. (See “Run for Cover,” February.) In late January, Bill Grimsey, CEO of building-materials retailer Focus, griped in The Financial Times that insurers were “fairweather friends” and lamented the “hand-to-hand combat” he has endured while persuading suppliers to stick with existing terms after a withdrawal of insurance. For its part, the Construction Products Association, a trade group, criticised credit insurers in a report for “fairly arbitrary decisions, which are affecting comp­anies that are perfectly sound.”

Jérôme Cazes, CEO of Coface, a Paris-based credit insurer, claims that his firm increased its coverage by more than 12% in 2008. Of course, “for specific companies there has been a reduction or cancellation of coverage by one or more credit insurers,” he adds. “These reductions have not been without reason.”

While Coface insures about a fifth of trade in the UK, France and Germany, “we are cited as the reason for altering credit terms much more frequently than should be the case,” Cazes notes. “It’s difficult for suppliers to tell customers that they have lost confidence in them. It’s easier to say, ‘I am confident but my credit insurer doesn’t like you any more.’”