Authority probes retailers' delay in paying suppliers

Authority probes retailers' delay in paying suppliers
  • The Competition Authority of Kenya wants to protect businesses, especially small enterprises, from collapse due to constrained cash flow.
  • The law stipulates that retailers found to be withholding suppliers’ pay without a good reason will pay a hefty fine.

The Competition Authority of Kenya (CAK) has started investigating delays by some retailers in paying suppliers.

The agency wants to protect businesses, especially small enterprises, from collapse due to constrained cash flow.

In March, CAK asked retailers and suppliers to furnish it with documents showing the payment status for deliveries made by 25 major retailers. The watchdog told the Sunday Nation that its investigations are informed by information received in April that some supermarkets may have missed payment deadlines without valid reasons.


CAK will look at the money owed for products and quantities supplied based on specific dates. The retail chains are required to provide an inventory of payment schedules for deliveries received by the end of May 14.

The law stipulates that retailers found to be withholding suppliers’ pay without a good reason will pay a hefty fine. The penalty for abuse of buyer power is a five-year prison sentence or a fine of Sh10 million or both. CAK may also impose an administrative penalty of up to 10 per cent of the undertaking’s turnover for the preceding year.

CAK’s communications and external relations manager Mugambi Mutegi said they had received retailer and supplier statements on payment status and demands that were being scrutinised.

“The authority is in the final stages of analysing the information and will, in the next two weeks, communicate the next course of action to the specific supermarkets that may have contravened the law and further engage the affected suppliers,” he said in an interview.

CAK was still receiving supplier demand statements that will enable it to determine the gravity of the problem, he said.

Sources in retail chains blame the Covid-19 pandemic for the delayed payments. This, the retailers said, is due to reduced customer visits.

But some suppliers are of the view that failure to conduct feasibility studies before embarking on expansion has led retailers to open loss-making branches that have hurt their profits, forcing them to use suppliers’ money to meet their operational expenses.


“They aggressively market their brands and secure spaces deemed strategic to shield entry of a rival into the market. Suppliers and landlords who suffer the brunt of this expansion blunders are not involved in the plans but have no choice but to remain mute or lose market for their products,” said a supplier, who declined to be named.

Before it collapsed, Nakumatt engaged in a multibillion-shilling expansion drive across East Africa, taking possession of strategic locations and in the process amassing supplier debts worth over Sh40 billion. While it remained the go-to retail chain in Kenya, Uganda and Rwanda, its fall became imminent after suppliers demanded payments.

Association of Kenya Suppliers chairman Kimani Rugendo declined to comment on the disputes, saying they had penned fresh payment schedules with retailers and that there was no cause for alarm.

The delayed-payment rows led to the enacting of a new law on “abuse of buyer power” that empowered CAK to monitor dealings between retailers and small and medium enterprises (SMEs) with a view to shielding SMEs from being wrestled out of business because of retailers’ failure to pay them on time.

Suppliers and retailers also signed a gentleman’s agreement to have payments released within 90 days, with fast-moving consumer goods will be given first priority.


But failure by the cash-strapped Kenyan unit of listed Botswana retail operator Choppies Kenya to settle on time supplier debts worth Sh600 million has rekindled debate on whether the government is committed to protecting SMEs that supply goods to large retailers.

Listed Uchumi Supermarkets is also on the brink of collapse and is facing a myriad of lawsuits from suppliers demanding its closure and seizure of assets to raise money to settle supplier debts.

For its part, Kenya’s leading outlet, Tuskys Supermarkets, confirmed delaying and reducing payments to suppliers, banks and landlords, blaming constrained cash flow due to the impact of the coronavirus on its business.

This, it said, had forced it to renegotiate payment terms with its suppliers to keep its shelves full. It also closed three branches in Nairobi, Mombasa and Kitale to cushion itself against the impact of Covid-19.