From Mr J. R. Jaquiss
SIR,-The article by Jane Blyth (PJ, May 20, p779) is clearly a very generic article, which could be written for any retail business with the exception of pharmacy. In view of a potential negative impact upon independent pharmacists throughout Britain, I thought it appropriate to raise a few of the points with you:
Payment to creditors The advice to delay payment to creditors is dangerous, given that the loss of discount could have a very significant impact upon the profitability of a pharmacy. While it is difficult to be specific, loss of discount on an annualised basis can equate with borrowing at a rate of interest between 35 and 40 per cent per annum. This compares with a current interest rate on overdraft when linked to a wholesaler finance scheme of around 8 per cent per annum. Given that an average declared margin of a pharmacy is probably only around 24 per cent, to suggest that a pharmacist should in effect borrow at between 35 per cent and 40 per cent is potential financial suicide.
My personal experience has shown, on numerous occasions, the significant financial problems a pharmacist can experience by taking such action.
If not dealt with quickly, the burden can often be too much for the business to handle, with the obvious negative financial consequences.
Current schemes available The writer does not appear to have done any research on the current schemes available via the major wholesalers.
The Unichem scheme is being quoted as available through Barclays Bank alone and requiring a spend of 75 per cent plus an absolute condition of day-to-day banking. Furthermore, the AAH scheme is only quoted as a Lloyds TSB scheme. None of these facts is correct.
The Unichem Pharmacy Finance Scheme is available through Nat West Bank and subject to a spend requirement of 70 per cent of all purchases supplied by Unichem. It is not a condition that the day-to-day banking is through Nat West, although Nat West provides an attractive package for pharmacists.
Special overdraft arrangements No mention is made of the special overdraft arrangements available in conjunction with the wholesaler schemes and given the quote of 10p per £1 borrowed to finance stock costs, this assumes an interest rate of 4 per cent over base rate, which is significantly higher than those available under the wholesaler schemes arrangements.
Interest Interest "at the time of writing" is quoted at 7.5 per cent. I am not sure to which rate this refers. However, base rate has not been above 6 per cent for at least two years, although with the current hike in United States rates, this may prove to be accurate in the next month or so. However, that is pure speculation.
At Unichem Commercial Support we focus on helping our customers improve their profitability and the overall efficiency of their businesses. It is of concern that readers may take the contents of the article too literally and inadvertently get themselves into financial difficulties by choosing the wrong sort of finance and financial advice. Pharmacy business is a very special sector, requiring careful understanding and help from professionals who fully understand it. To adopt a generic approach, which fits every business associated with retailing, is not appropriate.
John Jaquiss
Controller Commercial Support, Unichem Ltd, Chessington, Surrey
Ms JANE BLYTH (managing consultant, Lewis Blyth & Co) replies:
Payment to creditors While Unichem Commercial Support is correct to state that the loss of discount while borrowing could reduce profit, it very much depends upon the turnover, size of discount, overdraft and interest rate charged, as each case is likely be different. It is incumbent on the proprietor to calculate the cost either personally or with the aid of an expert such as his or her accountant or banker. My statement was made specifically to draw to the attention of proprietors the fact that this could be an option. However, it is important to note that if it were to benefit the pharmacy, it could be to the disadvantage of the wholesaler which would have to wait a little longer for its money.
Current schemes available The facts quoted were as supplied by the banks. Further, I have not said that Barclays is the only supplier of Unichem finance, rather that Barclays was an example of a supplier, as was Lloyds TSB with AAH. Indeed I emphasised the point. It is always wise to research the market, check all the main fnancial institutions and compare facts.
Special overdraft arrangements While I acknowledge that special wholesaler schemes are available, the 10 per cent interest rate is not out of line with a small business margin of base plus 4 per cent. Indeed for the past 25 years the average costs of borrowing has been in the region of 10 per cent. Consequently, an unnecessarily high stock level can have a significant impact on the profit of a business, especially where borrowing is taking place. Again though, lower pharmacy stock holdings are potentially to the disadvantage of wholesalers.
Interest The interest rate of 7.5 per cent was clearly in relation to the AAH scheme.
In my report I endeavoured to be impartial and to emphasise the importance to pharmacists of researching the market place and selecting the products which are right for them. I write as an expert witness in finance who has seen a significant number of cases where individuals have been seriously disadvantaged through lack of understanding of the market place.