Industry sector: Business services

Record label: Payments to creditors

When you buy services 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 will aim to set up accounts with manufacturers that will press your CDs or vinyl records for you (unless you're planning to distribute your music only in digital format). Many manufacturers will provide a full service which includes pressing, duplicating, mastering, artwork and design and help with copyright issues. When choosing the manufacturer to use, you should check that they do not have a minimum order that is way in excess of the amount that you will realistically sell.

Depending on how you work it, royalty payments to the artists on your roster may qualify as 'Payments to creditors'. For example, every month you may inform each artist how many copies of their record have been sold and how much you owe them. The artist may then have to invoice you for the amount owed to them and you may then have a set time period (30 days, for example) in which to pay them. If you intend to merely deduct your percentage and then pass the balance on to the artist then royalty payments should be treated as 'Cash purchases'.

Setting up an account

For convenience - and to get the best terms of trade - it is best to set up accounts with the manufacturers that you will be using. 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 you for delivery.