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Kroger has caused consternation in the manufacturer community with a letter informing them it is changing its payment terms, moving to a net 90 day payment program standardized across the store. It also is working with Citibank to charge a financing fee to suppliers who want to be paid more quickly.

The new program reportedly will go into effect on August 1.

The changes are of particular concern to the produce industry, where there is a belief that the new terms could violate the federal Perishable Agricultural Commodities Act (PACA, which requires that fresh vendors be paid within 30 days. George Radanovich, president of the California Fresh Fruit Association (CFFA), for example, said that “it is inappropriate, if not illegal, to force suppliers to forfeit their rights under PACA, an act created specifically to protect the perishable fruit industry … “It is our understanding the Kroger has expressed a willingness to be flexible with this new policy, but ‘flexibility’ in this matter won’t help. By this action, they have opened the door for other retailers to violate supplier rights protected by law. Our industry should not and will not stand for attacks like this.”
KC's View:
I have the impression that at least in some cases, there will be suppliers who will be willing to pay the financing fee in order to get paid sooner, and then will deduct that money from whatever promotional allowances they were planning to offer Kroger.

Ninety days sounds like an awfully long time … and probably damned near intolerable for small companies that need to get paid to survive. They shouldn’t have to take a cut in order to get paid sooner.

This may seem like a smart idea from an accounting point of view, but I also think it potentially creates a scenario in which small, innovative companies are not going to want to do business with Kroger, which could deny them a level of innovation that every business needs. It’s pretty hard to be taken seriously when talking to folks about trust and collaboration when you simultaneously have your hands in the other company’s pocket and are threatening its existence.

Which this could do.