When you buy supplies on account instead of paying cash there and then, your suppliers are your creditors until you pay them. Enter in your cash flow forecast the payments that you will make to your creditors (including VAT) in the months in which you will pay them. You may be planning to set up accounts with motor factors, suppliers of security systems, tools and test equipment.
Some suppliers offer useful items like point-of-sale displays, signage, advertising and promotional material in return for agreeing to use only their products.
Setting up an account
For convenience it is best to set up accounts with your main suppliers. To do this you may be asked to provide bank and trade references. Until the account facility has been granted you will have to pay for your order at the time you place it. This is known as paying on a pro forma basis.
Once your account has been set up you will be invoiced at regular intervals and expected to pay within a certain number of days of receiving the invoice.
Discounts from suppliers
You may be offered, or be able to negotiate, various discounts from your suppliers. Examples include:
- early settlement discounts
- retrospective rebates
- volume discounts
In some cases suppliers may impose minimum order conditions and charge for delivery.