Delivery alert

There may be an issue with the delivery of your newspaper. This alert will expire at NaN. Click here for more info.

Recover password

Stiffed vendors get tough with retailers after big losses

As U.S. retailers celebrate a boom lifting one of the pandemic’s hardest-hit sectors, scars left by a year of bankruptcies and delayed vendor payments could threaten to undermine their recovery – just as the crucial back-to-school shopping season begins.

After watching their receivables mount last year, vendors of apparel and other goods demanded change. In order to ship, many began requiring payment upon delivery of the goods or even in advance, according to people with knowledge of the demands, which were made of distressed and healthy clients alike. For merchants, that’s a big cash drain at a time of great uncertainty.

The shift comes after retailers spent much of last year delaying payments to preserve cash. Such maneuvers have long been used by struggling chains, but amid the pandemic, even more stable merchants like Macy’s Inc. and Gap Inc. followed suit. An analysis of company financial data showed such buyers took at least two weeks longer to pay their suppliers than the same period the prior year.

Vendors are “shell-shocked” after a string of COVID-era bankruptcies left them with large losses, and more concerned about guaranteeing they’ll be paid, said Perry Mandarino, head of restructuring and investment banking at B. Riley. “Late payments are not being tolerated,” Mandarino said.

Contributing to their hard-line approach is the knowledge that one traditional safety net has become less available and more expensive. Credit insurance and factoring companies – the financial support systems for many suppliers – scaled back last year after suffering their own COVID losses from unpaid vendor bills they were forced to cover. Many are waiting to see how retailers recover and are only selectively writing policies tied to the healthiest merchants now.

Manufacturers need to protect themselves, but they still need to sell goods. Vendors don’t have the capability to manage the risk on their own, said Michael McGrail, chief operating officer at Tiger Capital Group, which conducts services including inventory appraisals. Without a backstop, “it becomes a real leap of faith,” to supply goods and wait for payment.

Some see the pullback inviting nontraditional entrants into the market for vendor financing. New York-based Angelo Gordon is one investment firm wading into the space; it’s begun offering put options on accounts receivable claims, another form of trade credit insurance for vendors.

One other bright spot for retailers is that many have the benefit of red-hot debt markets to refinance other obligations.

In March, Nordstrom issued bonds to buy back pricey debt it borrowed in mid-2020. Kohl’s followed soon after, slashing its interest costs.

Those savings may help retailers plug the hole created by accelerating vendor payments, said Lynn Whitmore, corporate origination leader for Well Fargo Commercial Capital’s origination team.

“On one hand, smart companies like Nordstrom and Kohl’s are raising money to maximize liquidity, reduce interest expense, and extend looming debt maturities,” Whitmore said. “On the other, even though many retailers are flush with cash, they are still facing vendor pressures and supply chain challenges more than they have before.”

Vendors have also been taking action to recoup payment when clients delay checks or enter Chapter 11, which freezes ordinary payments and leaves creditors at risk of losses.

After stationery chain Paper Source Inc. filed for bankruptcy in March, suppliers complained publicly that the company had placed large orders in the previous weeks only to seek bankruptcy protection without paying for them.


Albuquerque Journal and its reporters are committed to telling the stories of our community.

• Do you have a story about how coronavirus has affected you, your family or your business? Do you have a question you want someone to try to answer for you? What issues related to the topic would you like to see covered? Or do you have a bright spot you want to share in these troubling times?
   We want to hear from you. Please email yourstory@abqjournal.com or Contact the writer.


TOP |