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Follow on Google News | Working Capital - it’s not all wet stock!Following our look at the effect of wet-stock holdings vis-à-vis retailers’ cashflow last month...
By: Andrew Patterson Plastic – part 1. The typical independent dealer doesn’t pick what payment cards they accept, nor the means of transmitting card information into the banking system; the most common approach being that card acceptance and processing is offered as part of the contractual supply ‘package’ with their oil company. In theory this should be a benfit to the retailer in that the oil company will usually have negotiated lower costs for these services than might otherwise be on offer, and indeed in some cases the oil company doesn’t pass any of the transaction cost back to the dealer [directly]. However, the most common complaint from the dealers is that the time taken for sales proceeds to hit their bank account is still too long. While sales on bank debit cards are usually in the account within three working days, those on the oil-company branded or other ‘fleet’ cards can still take anywhere between five and ten working days to be banked – and that’s without any particular queries or other disputed items. According to one dealer who’s been in this game for over thirty years, there’s been virtually no improvement to payment times on fuel cards since the dawn of the ‘electronic’ Plastic – part 2. One subject that irked a number of dealers was the reliability [or otherwise] of some of the EFT systems that they use, some of which had gained an unenviable reputation for ‘falling over’ several times a year. Quite apart from the chaos this always causes at the point of sale, the retailers were then faced with having to photocopy every single card receipt off their POS, covering a whole day [or sometimes longer -] of sales, before batching them up and submitting them to their card acquirer. In the words of one dealer “That’s when the fun begins” – meaning that these manual sales vouchers can take weeks to be accepted and cleared – so that the retailer has another few thousand pounds of his or her cash tied-up in the system for far longer than usual. It’s on the shelves. There’s an unwritten Law of Retailing that says ‘After any shop refit you’ll need to display at least 25% more stock’. In other words: once it was possible to keep a typical forecourt shop looking well stocked, even if your store-room was bare, and hence the total value of dry stock could be kept down. Today’s modern supermarket- It’s my account customers. If it is, then sorry, but you’ve only got yourself to blame. If your customers really want the convenience of not having to pay for their fuel at every visit, the simple answer is pre-paid accounts: they give you a month’s worth of cash up-front, you let them draw fuel up to the maximum they’ve paid. Then you stop them having any more before they pay you another large wodge of cash up-front. And you charge them an administration fee for the luxury. Any other arrangement is asking for trouble. It’s in the other bank account. Once upon a time, on every high street there were dozens of branches of what used to be called ‘Building Societies’. Some of these used to positively want cash from small business customers [because they tended to pay out a lot of cash, over the counter, to their own customers] offering to count it free of charge, and as an added bonus they even paid you interest on the cash you deposited with them – unlike the ‘banks’ who charged you for counting and accepting cash into your own account. Hence common practice for forecourt retailers was to open an account at their local building society and deposit bags of cash there, before writing out a cheque from that account and paying it in to their bank account. Some still do. Unfortunately real ‘Building Societies’ have almost disappeared and most of those old names that do still exist are really just subsidiaries of the same banks who’s charges you’re trying to avoid. And nobody wants to count cash for free anymore. If you do manage to find a branch which will still allow you to bank cash for ‘free’ just remember that whatever you deposit with them will generally take at least three more working days to become available for paying bills out of your bank, even if you deposit the building society cheque straight into your bank account – and even if both are part of the same banking group! Actually, it’s called “Working Capital”... Of course what we’re looking at here is good old-fashioned ‘Working Capital’ – the money that’s almost permanently tied-up in ‘the plumbing’ of any functioning business. Looking at trends over many years, perhaps the bias has shifted somewhat against the small independent forecourt: unbelieveable as it may seem today even fuel used to come on credit terms longer than three days [seven days was once quite common, as were ‘monthly’ terms whereby the oil company would take payment for a whole month’s deliveries a few days into the following month..] and many shop suppliers worked on a 30 day credit period. Bear in mind though that in those days plastic payments were at least a little slower before EFT’s and many more sites extended credit to local account customers. Overall however, credit today is short and so the amount of working capital needed from each business owner is relatively higher: less ‘in the bank’ and more ‘in the business’. # # # EKW Group is recognised as a leading retail accountancy specialist and has been providing bureau and outsourced accounting and associated services to retail branded networks since 1935. End
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