When you buy stock on account instead of paying cash there and then, your suppliers are your creditors until you pay them. 'Payments to creditors' are the payments (including VAT) you will make every month or so to your major suppliers of stock and specialist services, for example lens cutting. For maximum convenience you will probably aim to set up an account with each of these main suppliers, which might typically include:
- specialist manufacturers (for example spectacle frame and contact lens manufacturers)
- specialist wholesalers
- specialist prescription houses
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 each order at the time you place it, or on delivery. 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. Most suppliers will allow you around 30 days to pay and some may offer you as much as 60 days credit.
Discounts and support from suppliers
When choosing your main suppliers, look for those who will offer your business good terms of trade and a reasonable level of technical and after-sales financial support. Things to look out for include:
- discounts for purchasing goods in large amounts, and loyalty bonuses
- high quality point of sale material and free or discounted display stock
- financial assistance with your advertising costs
- acceptance of some 'returns' of unsold stock
Although discounts and incentives can be attractive and at times very helpful, you may sometimes prefer to pay a little more for your stock and buy it when you need it, rather than buying large amounts in advance. These will need to be stored somewhere until they are sold and will tie up large amounts of your cash. Don't be persuaded to buy more than you think you will actually need! Sometimes, visiting sales representatives will use incentives to try to persuade you to switch to their brand. Weigh up the pros and cons of doing so - do what's best for your business in the long term.
You may be able to negotiate preferential terms of trade with your suppliers by joining a buying group.