The Vendors' Bill of Particulars

New York — Hoping to ease the testy relationship between suppliers and their customers, the Vendors Coalition for Equitable Retailer Practices has tried to codify and clarify — and alter — the system of chargebacks and allowances that has developed, unregulated, over the years as retailers have increasingly tested the limits of their clout.

In a recently published manifesto, the coalition introduced a brief list of policies and procedures they hope will lead to a redefined relationship.

“If there is to be a true retailer/vendor partnership, that partnership must reflect rules, policies and procedures that are tolerable to both parties,” suppliers say in a position statement. These key issues, they add, “should be dealt with consistent with the law, reasonableness, and a true partnership.”


“Claims of margin support must be based upon regular, detailed, signed reports, verifiable upon request, furnished by the retailer to the vendor, which accurately reflect sell-through and margins, based on the net price actually paid by the retailer, not including such items as shrinkage, employee discounts, etc., over which the vendor has no control.”

In a separate commentary, the Vendors Coalition said, “If the retailer intends to claim margin support, then it must furnish to the vendor regular, usually weekly, reports signed by an authorized representative of the retailer from which the vendor can be truly aware of his its products are selling.” Putting some teeth into the proposal, the vendors add, “A retailer's failure to keep accurate records and proper controls may violate the Sarbanes-Oxley Act of 2002.”

Vendors go on to say, “It is common for some retailers to base their net margin determination on the gross price of the goods purchased from the vendor, rather than the net price the retailer actually paid.” In arriving at the net price, a number of items should be excluded, including the customary 8% discount for timely payment; allowances for returns, advertising or warehousing; and shrinkage and employee discounts.


“Retailer claims of deficiencies or noncompliance must be made in writing with an opportunity for the vendor to investigate, and to correct if appropriate. No deductions against payments may be made without prior notice and an opportunity for the vendor to negotiate. Fixed charges for claimed non-conformities must be based on the actual or anticipated loss resulting from the claimed non-conformity.”

In a separate note, vendors point out the Uniform Commercial Code (UCC), which covers all sales of goods of $500 or more, provides that claims of non-conformity are barred after the retailer accepts the goods, unless objection is made within “a reasonable time.” Vendors also point out the UCC further stipulates “the buyer has the burden of proving a non-compliance.” Going one step further, the UCC bars a deduction without giving the supplier prior notice.

In a final note, the vendors say any charges or penalties must be reasonable. “Many retailers have a schedule of charges they impose for each specific non-conformity or violation of their re1quirements.” But under the UCC, “such a specified charge is void unless it bears a reasonable relationship to the actual or anticipated loss resulting” from the infraction.


“Cash discounts may not be taken unless payment is made within the discount period as specified on the invoice. Payment received thereafter should be at the full invoice price. Calculation of payment days should commence from the date of title transfer, not the date of receipt by the retailer.”

In their commentary, vendors said, “It is customary for many retailers to pay after the discount period and to nevertheless take the 8% timely payment discount.” Additionally, vendors say, “Some retailers calculate payment days form the date they receive the goods. This is improper and contrary to law. If, for example, the terms of delivery are FOB, then the calculation of payment days begins from the FOB date as a matter of law, not from the date the retailer receives the goods.”


“Authorized returns should be credited at the net selling price, that is the price actually paid, not the gross price before discounts.”

Commenting on the proposal, vendors said, “Some retailers making returns which have been authorized by the vendor take a credit for the return based on the gross sales price, rather than the price which the retailer actually paid after taking various discounts. This is plainly unfair and inappropriate.”


“Once an order is given, even informally or orally, and it is confirmed in writing by the vendor, who must then make commitments to fulfill the order, it is not subject to cancellation, even though a more formal purchase order may not yet have been sent.”

Expanding on the point, vendors said, “It is the practice of certain retailers to informally issue bulk orders without transmitting a formal purchase order.” Frequently a formal purchase order isn't sent out until the vendor has committed to the goods or manufactured them, the vendors note. “Some retailers take the position that until they issue the formal purchase order, they have no obligation to accept the goods, even though the vendor has spent substantial amounts to fulfill the bulk order.”


“The practice by some retailers of putting moneys that are due on hold in expectation of a possible margin allowance, return or other chargeback is impermissible and violates the retailer's legal obligations.”

Vendors said it is customary for some retailers to put payment on hold for goods received “pending negotiation or resolution of a claim for margin support, non-compliance or other chargeback.” This, the Vendors Coalition said, “is not only unfair,” but violates the UCC “and could lead to violations of the federal securities laws and the Sarbanes/Oxley Act.”

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