Cyclescheme - Are we victims of our own success?
Posted on in Cycles News
Below is an open letter from one cycle retailer concerning some of the fundamental challenges raised by the growing popularity of the cycle to work scheme, and in particular what this means for retailers working with Cyclescheme.
We have kept the retailers name anonymous, and apart from some spelling corrections the letter has not been edited.
We have also asked Cyclescheme for their response, which you can also read below.
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Hi Mark,
I wonder if I could ask ACT to investigate IBDs views on the operation of Cycle to Work schemes - and in particular Cyclescheme.
We have been very successful (in terms of volume) with Cyclescheme sales so far this year and I know many in the trade consider it to be the saviour of the bicycle industry during the recession.
However ... it appears we are victims of our own success.
We have had around 80 bikes ordered in the last couple of months and are now waiting for the vouchers to be issued and returned. As soon as a customer orders a bike we try to obtain it or reserve it for them if we already have it in stock. Whilst we are not obliged to do this, we feel our reputation could be compromised if we don't have the bike the customer has ordered when they return with their voucher.
Because the volume of bikes involved we have had to pay some of our suppliers sooner than normal because we have exceeded our credit limits.
Many employers using Cyclescheme take a considerable time to pay. In the case of our local health authority they kept the scheme open for 6 weeks and then paid for all the vouchers in one go. This resulted in our being out of pocket in the region of £35K just for that one employer.
Our total Cyclescheme business amounts to in excess of £53K so far this year. That represents approximately 10% of our annual turnover and considerably more than our bank overdraft. By the way, banks are not being supportive. We asked our bank manager for an extra £10K on our overdraft limit, when at that time we were due around £35K from Cyclescheme. He offered us £5K.
We have raised this with Cyclescheme but I have to say their response has not been particularly helpful. They are required to pay us within 7 days of their receipt of the redeemed voucher. We are concerned about the length of time they say it takes for an envelope posted 1st class to reach them. Paying for recorded delivery or guaranteed Special Delivery will only further erode our margins.
Cyclescheme take a 10% commission. We estimate that this year so far our Cyclescheme business is approximately £53K - of which they will get £5.3K and we will receive £47.7K - however when this is translated into raw profit (i.e. cost of goods to us - not including overheads) we might make about £17K if we are lucky/careful.
There is extra workload for the cycle retailer in selling a bike on Cyclescheme - this is particularly so when dealing with the numbers we have had so far this year.
Customers expect everything to be ready when they bring their voucher in - we have run out of storage space for bikes and accessories. In addition to these practicalities we have to check ID, check and complete the voucher, redeem it online, post it back , and then allocate the payment to the customer's account, when it eventually reaches our bank account.
From our perspective Cyclescheme has the employer's cash before the voucher is issued and then get to hang onto it for around 2 weeks before the IBD gets paid - nice wee earner on top of the 10% commission even in these days of low interest rates.
The other operator we have had dealings with this year is Cycle-Plus, who use a debit card scheme resulting in near instant payment to us. Cyclescheme are not interested in using a similar method.
Don't misunderstand me - I do not want our Cyclescheme business to dry up - but there are real operational and cash-flow difficulties involved.
I would be very interested to hear other IBDs' views on this.
Cyclescheme response
Storing 'ordered' bikes
We appreciate that most partner stores allocate a bike upon quotation. At this point of the voucher process it is merely a quote and not an order. However I have some very good news: Our new on-line signing of hire agreements means that employees become fully committed as soon as they put their quote onto our secure Extranet, which is the next stage following the paper quote.
The old system allowed them several days thinking time between applying for their voucher and receiving the hire agreement from their HR department/manager. The new system is designed to speed applications through and reduce the time between applications and voucher issue.
Highlighting delays in the Cyclescheme process
As most partner shops know, the largest and least predictable delay in the process is waiting for the employer to pay Cyclescheme. We do need the money up-front before voucher issue as otherwise payment periods would slip once the equipment is supplied and Cyclescheme would end up underwriting schemes.
This would quickly lead to slippage in payments to partner shops. At present we are contracted to pay within 7 days which is an exemplary service especially considering we usually pay within three working days. The majority of payments are same day but please don't hold us to this! Vouchers are also issued same day we get paid by the employer so we hope that it is appreciated that we do our best to eliminate delays in the process.
Cash-flow
Cash-flow is an inevitable problem. We are aware that partner shops store bikes for one to eight weeks. Hopefully the usual turn-round is two to three weeks so we would have hopefully paid partners before they settle their bills (for all bikes ordered in). It would be good to study stock turnover as I would presume Cyclescheme is generating additional turnover and therefore generating payment for stock that would otherwise be more stagnant?
Deposits
We are also aware that some partners take a deposit from the employee at quote stage to ensure they return and guarantee that any bike taken off display or ordered will be collected. Deposits are not usually large (often 10% or £50) but will help cash-flow in a marginal way.
Working with suppliers
Some suppliers are also able to 'ring fence' Cyclescheme bikes both to guarantee supply but also to delay invoice dates. If the partner store has an understanding of timings with particular schemes they can use this to good effect. We are working with a few suppliers in order to coordinate supplies of in-demand models but supply is one of the most critical and difficult issues within our trade. More communication on all sides, including Cyclescheme is required for better understanding all round. We will be communicating on a monthly basis with all suppliers within a few weeks following developments in reports from our Extranet.
Margins
Margins are always a hot topic and we are keener than most to ensure that we preserve our margin. We are reliant upon turnover and many small schemes are a lost-leader due to the free service we give to employers. This free service includes custom leaflets, posters and road shows (if they are large enough) plus all the administration service we offer from our support desk and secure website. Our margin is further eroded by other 'invisible' services include tender submissions and these can be extremely onerous.
Accessory content
The dealer margin can be enhanced by including a decent percentage of accessories with each bike and our Cycle Commuter magazine is designed to pre-educate employees before they come into the partner shops in order to make the whole sales process more familiar. Past accessory content has been around 12.5% and we are trying to 'up' this towards the 20% area - at which point the margin on accessories will nominally cover the Cyclescheme commission, leaving full margin to be made on the bike.
Cyclescheme Extranet
Partner shops do have to administer our scheme but our Extranet is there to make this job much easier. For instance Cyclescheme generate every invoice necessary for us to pay partner shops - without this process some shops would need to employ an administrator for this task.
The Extranet also allows shops to track voucher progress and gives an accurate chronology of events from request to redemption. This should also allow partners to schedule deliveries of ordered equipment. We realise that our card voucher system is a bit clunky and old fashioned but it is incredibly safe and fraud-free and this means everything to us. We are constantly revising and improving our services and hope that partner stores appreciate most of the improvements.
Questionnaires
Following on from this last comment, we would like to remind partners that we need them to return their questionnaires issued earlier this year. Without their feedback we cannot accurately second-guess what's needed.
Summary
In summary, I appreciate that working with Cyclescheme is an extra burden on staff, resources and finances. We hope however that there are many overall benefits and are striving to support the independent bicycle trade by winning business from our competitors.
Our recent victory with the Communities for Local Government tender now means that our provision will be templated for all Government Departments and their Agencies, Non Departmental Public Bodies, Local Authorities, Police Authorities, Fire Authorities and Educational Establishments. We too would appreciate feedback from our partner stores.
Richard Grigsby, Director, Cyclescheme
So what do you think?