Wal-Mart Stores Inc is helping well over 1,000 of its apparel suppliers secure financing based on the strength of its own credit rating.
The program, outlined in a November 2 letter to suppliers, was designed to address concerns about liquidity, company spokesman John Simley said.
We didn't want our suppliers to be in a position where they could not secure financing at an attractive rate, he said.
Under its Supplier Alliance Program, an eligible supplier can go to a bank with a purchase order from Wal-Mart and the bank can arrange for financing based on Wal-Mart's strong financial position.
The retailer, which has a AA credit rating, said it has partnered with Wells Fargo & Co and Citibank Inc to provide the program.
We're not underwriting and we're not extending our (credit) rating, he said.
Factors buy receivables -- or the right to receive money owed by retailers -- from suppliers at a discount so that those suppliers continue to have working capital.
But worries about the health of factors has heightened following the November 1 bankruptcy of CIT Group Inc , a major player in the factoring industry.
We know that many of our suppliers are dependent upon factoring and financing companies that are reportedly in financial distress, Wal-Mart wrote in its letter to supplies.
We are contacting you as part of our effort to proactively minimize the exposure of our supplier base to the financial difficulties of any particular factoring source.
Wal-Mart's ultimate goal with the program though is to keep its own costs down.
It gives us a more secure supply of the things we need to sell and, if the suppliers are getting a little bit better rate because their loan was negotiated on the strength of our financial position, we can lower our costs and that can be passed on in the form of lower prices, Simley added.
(Reporting by Nicole Maestri and Lisa Baertlein; editing by Leslie Gevirtz and Andre Grenon)