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Borders Invoice Payment Delay: The Real Story

A lesson trying to get some facts before running a story..

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First, here is the story:
GalleyCat has received a copy of a “special alert” sent from a major book distributor specializing in independent publishers to its clients, warning them that Borders, whose financial difficulties are widely recognized, “now tell us that they will not be paying us for two months due to anticipated excessive returns,” a situation the company views with understandable concern. This distributor “typically carries receivables of approximately two million dollars with Borders,” the memo continues. “A default of that amount would by no means put [us] out of business, but it would be painful, weaken the short-term health of the company, and would mean we would have to defer some of our plans for future growth.”

Therefore, the distributor is telling its clients they need to make a decision this weekend: “Publishers must either instruct [us] not to ship their titles to Borders [or] accept the provision that [we], for Borders business only, will guarantee payment only for the publishers’ historical printing cost of books that are not paid for, rather than for the whole amount of any unpaid invoices.” (As the memo explains, the printing cost of a $14.95 paperback is roughly $1.50, compared to the $7.48 the distributor bills Borders.) The new policy is contrasted to what the company says other distributors do, asserting that some of its competitors are refusing to take any credit risk at all on inventory sent to the struggling chain.

The memo emphasizes, however, that this distributor does not actually recommend that any of its clients start denying Borders their titles:

“Borders has been paying [us], they are reported to have cash on hand and access to credit in the future, and the last thing anyone wants is to have only one giant chain in the retail book market. Borders may prosper, and even in the worst case, given [our] uniquely flexible policy, the value of your inventory would be preserved.”

Additionally, “this policy will stay in affect only while there are serious concerns about Borders viability.” Of course, given that Borders announced a new inventory display strategy earlier this year that would require cutting the stock at a typical outlet by as much as 10 percent, the overall impact of this development on small publishers may be difficult to fully ascertain at first.”

I spoke to people at Borders who told me:
Since books are a returnable item (unsold inventory can be returned to the publisher for credit) it is possible as they stay with their ongoing focus on inventory productivity that they could have a credit exceed the amount of an invoice, and that explains what happened here … it comes across as Borders being unable to pay this vendor, but it is a case where the returns outpaced the invoices.

Now anyone familiar with Borders know that one of the first items on CEO George Jones’ “to do” list was decrease the bloated book and music inventory in the stores.

Part of the inventory strategy does involve returns. Borders absolutely must get titles that don’t sell out of the stores to make room for titles that do sell. Toward this end, inventory teams have been doing a deep dive into the inventory of each store and removing unproductive inventory while adding productive inventory to the stores on a case by case basis where needed. In addition, they are looking at the inventory in their distribution centers and making appropriate returns.

Simply put, this is NOT a case of Borders delaying payments due to a cash crunch but simply not paying invoices that are going to be credited back to them eventually anyway.

Look at it from your point of view, would you pay an invoice sent by a vendor in full if you were returning items for a credit? Me either. This is just a common sense decision from Borders.


Disclosure (“none” means no position):Long BGP
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