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It has been a long, long wait, but at last, someone else in this industry has gone public with a call for a review of how fuel cards and bunkering/agency payment systems affect independent fuel retailers.

The only real surprise is that it’s taken the PRA so long to bring the issue out into the light, since the problems with these methods of payment have been around since the year dot. Still, better late than never…

Quite naturally, the recent statement by the PRA has emphasised the issue of margins achieved on fuel-card sales. As they correctly point-out, these are (still) typically in the region of 1p per litre on fuel cards and even lower on bunkering arrangements. I’ve been involved with petrol-retail accounting since 1985: looking back I believe that those ‘margins’ have barely changed in any significant way since that time – although I do remember some of the ‘bunkering commission’ rates were sometimes less than half of the current figures, back in the 1980s and 1990s!

Anyway, the current rates are quite obviously non-sustainable at a time when all retail outlets face large cost increases in areas such as electricity charges, wage rates and almost everything else over which they have virtually no control. There is really no logic to justify these rates: selling fuel to a customer takes the same (or more- labour time and uses the same (or more-) power whether that customer is paying on a fuel card or a debit card. And the debit card transaction will invariably cost the retailer much less to process.

And while we’re talking about margins, it’s only an aside, but I have lost count of how many protracted discussions I’ve had with VAT inspectors at sites since 1985 regarding the effect of these payment methods. The typical scenario would be for someone from HMRC to come out on site, not really familiar with fuel retailing: they would invariably bring some internal paperwork showing them an idea of what the expected/typical gross margin on fuel sales should be (if we were lucky, they might already be aware that these margins were per litre, rather than as a simple percentage of turnover…). They’d then look at the site sales volumes, and hey-presto work out what they believed should be the gross profit for the site. Naturally, the real figures we were showing them in the management accounts were considerably lower.

There would follow an hour or two where we tried to explain that the site sold maybe 30% (or more) of its volume on fuel cards (etc) and made around 1ppl on those sales. Eventually, after examining dozens of remittance statements, they would accept the explanation, albeit often with some amazement.

The loyalty myth

While we’re here, let’s also explode the myth about customers using fuel cards being loyal and spending their own money on shop purchases. In my experience, company drivers using these cards have tended to buy fuel at whichever sites their bosses have told them to use, and/or wherever the facilities on offer suited them. As far as personal spending is concerned, there was a time (quite long ago) when drivers might regularly pick-up a packet of cigarettes and a newspaper while in the shop, but both of those sales lines have declined markedly over the years. So today that might be a packet of sandwiches and a soft drink; however, many retailers say that the drivers are usually in too much of a hurry to spend any time (and perhaps, more importantly their own cash) buying things in the shop. Essentially, the site’s GP on whatever an HGV driver might typically have spent in the shop was always pretty insignificant compared to the loss of fuel margin on a couple of hundred litres of diesel bought on a fuel card.

But ‘margins’ are only part of the problem. There’s the issue of cash-flow, which we’ve raised many times in this column over the years. Traditionally the fuel cards have remitted to the retailer by weekly statement (yes, some of the bunkering/agency systems have now moved to more frequent statements) with a single weekly bank transfer into the retailer’s account. Usually, those weekly statements actually referred to sales transactions that were three, four or sometimes more, weeks in arrears. Take a look at your most recent fuel card statement – maybe this week’s: there’s still a very good chance that you’ll find transactions on there that date back a couple of weeks or even longer. Even if it’s only 10 days earlier, calculate how many days passed between your making the sale and the money actually hitting your bank account. Then consider when the oil company took their direct debit for that fuel.

Here we are in 2022 when most retail EFTs can be in your bank account within one or two working days at most; why should you have to wait even one week for a remittance from a fuel card if you’ve already paid for the fuel within 2-3 working days of delivery?

I have known independent dealer-owned sites where around 40% of their volumes at one time or another were on fuel cards and bunkering/agency terms. Sometimes the volumes looked very impressive – think in the region of 8-9 million litres a year. Their overall profitability at the time was considered “OK” – but that was largely down to the 60% of their sales that were purely retail. And yes, when those sites became un-competitive (for any number of reasons) to normal ‘retail’ consumers, they were always reminded by their supplying oil company that the ‘trade’ customers were “loyal”. Unfortunately, when their total volume dropped to (say) 4-5mlpa, and the proportion of trade customers using fuel cards rose to 60-70%, they realised what the combination of negligible margin, slow payment and reduced shop sales really meant. None of those sites are still in business today, and it wasn’t really down to much that they did wrong in how the site was run.

The need to reform this antiquated payment system is long overdue.

 EKW Group provides accounting and payroll solutions for independent petroleum and convenience dealers, including fully outsourced accounting options:

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