A large supplier to online retailer


(AMZN) - Get Report

recently refused to increase the bookseller's credit limit, a development that contrasts with public assertions by the company that its supplier relationships have never been better.

TST Recommends

An executive at a major U.S. publishing company, who spoke on the condition of anonymity, says the company recently denied Amazon's request for better credit terms. The executive also says insurers of trade credit have effectively stopped insuring the accounts of dot-coms, including Amazon, by sharply increasing deductibles.

Meanwhile, an executive at another of the country's best-known publishing houses says Amazon is paying its bills and hasn't sought better credit terms. This publisher is keeping a close eye on the situation, the executive says, because "anyone who would say they are not concerned would be wearing blinders."

Statements like these conflict sharply with public statements made by Amazon management. For example, speaking at the

Merrill Lynch Internet Conference

on Feb. 7, Amazon CFO Warren Jenson told a group of investors that relationships with suppliers have "never been better."

The prospect of publishing companies restricting credit terms on Amazon should be of particular concern to investors, as bookselling is the company's core business. Previously, electronics companies were thought to be more swayed by news of potential credit problems at Amazon because they typically demand payment more quickly than the publishing industry.

Another small vendor that sells videos to Amazon has recently halted shipments to the company. An official at the vendor, which does about $50,000 to $100,000 a year in business with Amazon, says Amazon is three months late in making its payments.

This person also spoke on condition of anonymity, and officials at Amazon weren't immediately available to comment on this report.

Because Amazon does business with tens of thousands of vendors, there are bound to be disputes over billing, some analysts say. However, a major publishing company opting not to grant a request for a higher credit limit is significant, say analysts.

"If you have a publishing vendor out there not willing to give them the terms they want," says Kristine Koerber, an analyst at

W.R. Hambrecht

, "it could spell trouble. This is just one. There could be more out there, and if they are reluctant, then what happens?" (Koerber has a neutral rating on Amazon, and her firm has not had a banking relationship with the company.)

To be sure, none of these publishers have said they are restricting credit to Amazon, a top fear among analysts and investors. Nor do they say Amazon has not paid its bills. "There's a difference between going to a publisher and asking for more credit, and a publisher tightening credit," says Henry Blodget, analyst at

Merrill Lynch

. "The way we run the numbers, assuming they make their targets, cash is not an issue." (Blodget has a near-term accumulate rating on Amazon, and his firm has had a banking relationship with the company.)

The debate over the health of Amazon's balance sheet, which has polarized Wall Street in recent months, has pitted the view of

Lehman Brothers

analyst Ravi Suria, who contends the company faces series

liquidity issues, against the opinion of more bullish analysts like Blodget, who are more sympathetic to the company's contention that it has plenty of cash to pay its bills and become profitable on a limited basis by the fourth quarter of 2001.


New York Society of Security Analysts

has held a

series of forums on the company's finances. The group recently sent a letter to Amazon that raised a litany of questions about the company's financial guidance, including the issue of supplier relationships. "No support could be found for the management's public assertions that suppliers would grant trade credit based on Amazon's proposed 'new economy' concept of borrowed cash balances, ignoring the established standards of credit analysis based on working capital," said the letter.

The controversial Lehman report by Suria contends that the company's working capital -- its current assets minus liabilities -- was about $386 million at the end of the fourth quarter, much less than the $1.1 billion in cash and marketable securities the company claims will allow it to pay its bills and become profitable.

Amazon shares dropped $1.62, or 14%, Monday to $10.62.