Payment Terms

Suppliers reassure themselves after burning their fingers in the Nakumatt fiasco

In the case of Nakumatt and Uchumi, their collapse caught many suppliers off guard, the thinking at the time being that the retailers were too big to fail. [Courtesy]

Suppliers delivering goods to supermarkets have developed mechanisms to reduce their exposure to potential losses.

Suppliers lost nearly 20 billion shillings for the goods they supplied to the collapsed Nakumatt alone.

The amount is higher when money owed by other supermarkets that are struggling or have since closed is taken into account.

It is in this context that suppliers have since adopted mechanisms such as information sharing, with companies flagging each time a retailer is in default or delaying payment.

The companies run the information sharing platform under the umbrella of the Suppliers Association of Kenya (AKS).

“If your payment has been pushed from 30 days to 60 days, that is an alarm in itself. You also may not be alone; there could be other suppliers whose payments have been pushed forward. Unless there there is a valid reason why he was moved, it is alarming…it is a danger,” said AKS chief executive Ishmail Bett.

Mr Bett said the lobby provides a platform for members to share this information and take action whenever there are multiple such complaints and the retailer fails to offer satisfactory reasons.

“We ask our members to exercise due diligence and monitor credit limits on their end to protect them from extreme exposure,” he said.

In the case of Nakumatt and Uchumi, their collapse caught many suppliers off guard, the thinking at the time being that the retailers were too big to fail.

Their relationships with suppliers were also “secret”, with one company not knowing whether the other was being paid for their supplies or not.

“We learned hard lessons…Uchumi was our first lesson. At the time, Uchumi and Nakumatt were the SI unit on how to run a supermarket. Unfortunately, we didn’t see it coming. It happened again with Tuskys and Choppies as well,” Bett said.

Following the difficulties encountered by suppliers with Uchumi, the Ministry of Industrialization conducted a study recommending the development of a code of good practice and the development of regulations governing relations between suppliers and retailers.

The challenge, however, was that adherence to the code of practice was not legally binding, while developing a legal framework for regulation would take time.

But Bett said the Competition Authority of Kenya (CAK), which is tasked with preventing big companies from abusing buying power, provided a sort of haven for suppliers dealing with retailers.

“We planned to anchor the regulations on the National Trade Bill. However, it was expected to take some time to pass through Parliament. We wanted an urgent solution. The CAK has arrived and we have found refuge in its mandate to ensure that there is no abuse of purchasing power,” he said.

“In the event that many suppliers are not paid by a particular retailer, the association can report to the CAK, who then investigates. The CAK can also, on its own initiative, launch investigations if it has reason to believe that a retailer is abusing purchasing power,” Bett added.

He said the initiative is still ongoing, but they have made remarkable progress.

“We are not at the point yet where we can say we are not exposed, but we have reduced the exposure by getting the information at an early stage and trying to solve the problem.

The Retail Code of Practice (Retail Code 2021) was also published in the Official Gazette in August last year, making it a statutory document.

Bett said it was still in the early stages of implementation, but noted that it addressed the problem of late payment by supermarkets in a way that no other law does.

He noted shortcomings, however, with the code failing to take into account that suppliers, especially large makers of popular products, could abuse their power over retailers by withdrawing their products.

“For purchasing power to be investigated, there must be abuse of purchasing power. If a large retailer fails to pay a relatively small supplier, CAK will investigate, but if it’s the other way around – a large supplier withdraws products from a retailer – they may not look into the matter. . It doesn’t protect us 100%,” he said.

The code includes a model contract between a supplier and a retailer.

It also establishes the Trade Committee which will oversee the implementation of the code and the Disputes Committee which will review issues arising between suppliers and retailers.

“The 2021 Retail Code provides key guidance on late payments, disputed invoices…the general theme is that such prices and payment terms must be agreed between the parties and specifically provided for in the buyer contract- provider,” the law firm Bowman’s said in an analysis. code when it was released last year.

“While still in the early stages of implementation, the publication of the Retail Code 2021 is a clear sign that the Authority (CAK) is keen to enforce the provisions relating to the abuse of purchasing power of (competition) law. We recommend that buyers and suppliers perform audits of their contracts to ensure they are compliant.

Bett explained why vendors always get the shorter end of the stick.

“If a case goes to court and creditors seek liquidation of a supermarket, suppliers are unprotected and less likely to get their money back in the event of liquidation. Suppliers are unsecured creditors…those creditors are least considered and only paid when everyone else has been paid,” he said.

But under the new dispensation, suppliers face logistical challenges.

For example, they now have to deliver their products to the branch level unlike in the past when they delivered to retailer-owned warehouses from where they would then be redistributed to the branches.

This has been blamed for the lockdown of many vendors who lack the capacity to deliver to branches, especially those in remote areas.

“Being required to deliver to the branch is a concern, and we try to reason with them for practicality. Small suppliers will automatically be locked out unless they adjust their product prices, which will then affect the ability of buyers,” said Bett, who noted that traditionally only particular items had to be delivered to branches.

“We talk to them, especially on behalf of small suppliers… it might not make economic sense to transport the products to the stores. Most small providers don’t have the financial muscle. »