Industry sector: Consumer services

Shoe repairer: Payments to creditors

You may purchase your stock from a variety of different suppliers, some of which will insist that you pay them on the spot and others that will let you have a certain length of time in which to pay them. 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 you will make to your creditors (including VAT) in the months in which you will pay them.

For maximum convenience you will probably aim to set up an account with all of your main suppliers, who might typically include:

  • manufacturers and wholesalers of items used in shoe repairs
  • suppliers of key blanks
  • suppliers of goods for resale, such as footwear, laces and shoe care products

Although a single major distributor may be able to supply very many of the items which you sell, you may find that you need to deal with quite a large number of different suppliers to be able to handle the variety of repairs and other services that you will be asked to do.

Setting up an account

To set up an account 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. Many suppliers will allow you around 30 days to pay, although some may allow you as much as 60 days credit once you have established a good trading relationship.

Discounts from suppliers

You may be offered, or be able to negotiate, various discounts from your suppliers. Examples include:

  • prompt settlement discounts - some suppliers will give you as much as 10% discount for paying an invoice within, say, seven days
  • volume discounts - for buying large quantities of goods

You should consider whether it is beneficial to your business to take up the offer of prompt settlement discounts, at least in the first few months after opening. You may initially find it difficult to predict how quickly you will use your stock, so you may find it difficult to pay your suppliers before you have made substantial sales. In that instance it would be advisable to opt for the longest credit period available.

Other incentives from suppliers

Your suppliers might offer you other incentives. Some will deliver orders over a certain value free of charge. From time to time you might be offered special deals, for example 11 boxes of laces for the price of 10. Once again, think carefully about these - would you normally buy so many of this item, and if not how likely are you to sell them?

Working out the cost of the stock you will sell

You should by now have estimated how much you will receive per month from your main business activities. Use your estimated figures to work out roughly how much you will have to pay your main suppliers each month.

Some of the items you stock may be purchased from other suppliers with whom you don't have an account. These are known as 'Cash purchases' and are dealt with elsewhere in the cash flow.