Industry sector: Manufacturing

Furniture maker: Payments to creditors

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 month in which you will pay them. You will probably be purchasing raw materials and components from suppliers such as timber merchants, textile manufacturers, manufacturers of handles, fixings, fillings, springs and webbings, adhesives, polishes, stains and so on. You may also be purchasing packaging items so that furniture can be delivered without suffering from damage.

The British Furniture Manufacturers Association (BFM) website includes a directory of suppliers to the trade. The Furniture Industry Research Association (FIRA) also has a directory of member suppliers covering materials, components and services.

You might decide to purchase materials like timber from sustainable sources and use this as a selling-point - for example by signing up to the Forest Stewardship Council (FSC) certification scheme. Depending on how you operate and the types of furniture that you make, you might purchase some of your timber direct from sources like forestry owners and plantation managers. Of course, you might also make furniture from many other types of material - for example metal, fibreglass and plastics. Perhaps you intend to make one-off items using only or mainly found and recycled materials - if so your Payments to creditors figure may be very low or even nil.

Setting up an account

For convenience - and to get the best terms of trade - 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'll 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, particularly if you're an important customer buying large quantities of materials from them. Examples include:

  • early settlement discounts
  • retrospective rebates
  • volume discounts

In some cases suppliers may impose minimum order conditions and charge for delivery.