By Mark Kleinman, City Editor
Marks & Spencer (M&S) is to force hundreds of its suppliers to wait almost 11 weeks for payment as the company's chief executive attempts to accelerate a turnaround of its clothing business.
M&S on Thursday informed almost 500 general merchandise suppliers - roughly 75 of which are based in the UK - that it was changing supplier terms to extend payment from 60 days to 75 days from the receipt of an invoice.
M&S said the move would bring the company "in line with industry standards".
In a letter from John Dixon, M&S's executive director for general merchandise, the retailer acknowledged that suppliers "may have some questions" and said they would come into effect from early next month.
The change is expected to generate tens of millions of pounds in annual cashflow benefits to M&S, which has seen like-for-like general merchandise sales decline for seven consecutive quarters.
Marc Bolland, the chief executive, is under pressure to reverse the decline although he has been handed some breathing space by a broadly positive industry response to M&S's crucial autumnwear collection.
The letter from Mr Dixon was accompanied by a separate note outlining the availability of a vendor financing scheme, through which HSBC and Royal Bank of Scotland provide immediate payments to suppliers in exchange for a substantial discount.
The changes to supplier payment terms may prove to be controversial given the lengths to which the company has gone to emphasize its ethical credentials and corporate responsibility.
M&S suppliers will now have to wait up to a month longer for payment than those of rivals such as Gap and Levi's, and 45 days longer than suppliers to Next.
However, Tesco, Zara and Monsoon take 90 days to deliver payment, while Debenhams takes 120 days, according to information circulated by M&S to its supplier base this week.
M&S has historically enjoyed particularly close relationships with its supplier base, but angered some two years ago by asking approximately 60 of its top clothing and homeware partners to contribute 1.25% of their turnover with M&S to the company's store refit and promotional programme.
In 2010, shortly after he took over from Sir Stuart Rose, Mr Bolland doubled the payment period from 30 to 60 days for freigh-on-board (FOB) suppliers, which refers to the arrangement under which a company takes ownership of stock as soon as it is loaded onto container ships.
Full-service vendor (FSV) suppliers typically have a deeper relationship with retailers, and these suppliers will see their payment delayed from five to seven weeks under the new terms.
An M&S spokeswoman said: "We are always looking at ways to ensure we are running our business efficiently and that it is well set up for the future. As part of this, we are extending our GM supplier payment terms to bring us in line with industry standards."
Mr Dixon's letter went on to add:
"I'd like to take this opportunity to thank you for your ongoing support and commitment to M&S. We believe that parity and clarity in our terms of trade are important to all our suppliers and will help our businesses in the long term."
The supplier payment changes come as M&S continues to grapple with problems at a vast new distribution warehouse in Castle Donington, Leicestershire.
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