Some have reported that Walmart has extended its credit rating to suppliers to enable them to get better rates on the financing. Walmart later clarified this by saying that "We're not underwriting, and we're not extending our (credit) rating," in a statement to Reuters.
However, it is assumed that Walmart worked out somewhat favorable rates for the vendors at the banks based on the volume potential, and Walmart’s own strong financial position, which ensures the banks that the vendors will get paid, reducing their risk on the loans. Vendors show a Walmart PO to start the process, and a receipt notification to trigger the loan.
Walmart, however, is not the first retailer to launch such a program this year. This summer, Kohl's sent its suppliers a letter promoting a "reduced" 3.5% annual percentage rate of interest through its Supply Chain Finance program. The program, in partnership with a financial institution, also enables suppliers to get paid early once their invoices are approved for payment. The suppliers sell their invoices to Bank of America at an interest rate based on Kohl's credit rating.
Kohl's says that it offered the program to 41% of its suppliers, and so far 11% have signed up.
Walmart spokesman John Simley said it is the first time that Walmart has offered such a financing option, and that it is available only to clothing suppliers, with no plans for now to extend it to other suppliers. Many apparel manufacturers are small and medium-sized companies.
"It has been very well received," Simley said. "It works out very well because it provides us with greater surety in our supply chain — that the products we order, we will get."
Experts suggest other retailers with strong credit ratings could launch similar programs. One competitive worry would be that the vendors of retailers with those programs would become more dependent on those retailers, and giving them preferential treatment or supply if product availability was constrained.
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