Uchumi Supermarkets plans to renegotiate its trading terms with suppliers to allow for, among other things, longer repayment periods in a bid to ease its cash flow strain.
The retail chain, which is currently seeking Sh896 million through a rights issue, says its receivership between July 2006 and March 2010 affected its credit score, which made suppliers and other creditors demand stringent repayment terms that have strained its cash flow.
“We have noted that Uchumi has been a bit disadvantaged due to the receivership status eight years ago,” the retailer told shareholders at its annual general meeting Wednesday. “Our creditor days are much lower than competition, meaning that our cash flow is bound to experience strain as suppliers descend on us to finance their operations while competition trades with the suppliers’ money.”
“We intend to renegotiate more competitive trading terms with our partners to enable us play on an even playing field with the other industry players.”
Mr Ciano said Uchumi normally get credit periods of 30 days from a majority for their suppliers compared to between 60 and 90 days that competitor retail chains enjoy. The retailer recently had a public spat with some of its suppliers who were complaining about outstanding debts piling up.
The retailer’s latest annual report shows that its trade payables for the full year to June 2014 increased 2.5 per cent to Sh1.2 billion from Sh1.17 billion in the previous year.
Chief executive officer Jonathan Ciano Wednesday said the trade payables have in the past four months reduced by Sh200 million to Sh1 billion, adding that 78 per cent of the outstanding debts are less than 30 days old.
The retail chain says it is also planning to enter into consignment deals with suppliers of specific items where they are only paid for goods bought off its shelves.
The Association of Kenya Suppliers last month sent a strongly-worded letter to Uchumi demanding immediate settlement of its members’ debts, which it estimated at more than Sh100 million.
The group claimed the debt was for goods delivered more than seven months ago, prompting a standoff that resulted in important household products missing from the retailer’s shelves.
Mr Ciano, however, downplayed the row.
“What happened at the time is that one supplier lied to the others that we were not paying for goods delivered,” Mr Ciano told shareholders.
As of June 2014, Uchumi’s total liabilities stood at Sh2.5 billion, up from Sh1.6 billion posted the previous year – a 56.2 per cent jump.