Industry sector: Retail and wholesale

Record shop: Payments to creditors

You may obtain your stock from a variety of different suppliers, some of which will require you to pay them at the time of purchase 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 or agree payment terms with all of your main suppliers, who might typically include:

  • record labels
  • distributors
  • wholesalers

As a general rule, wholesalers tend to have smaller or even no minimum order requirements so you may find that purchasing stock from them is better for your cash flow, especially in the first few months after opening. Many small independent record labels and distributors supply records on a sale-or-return basis, so you usually don't pay for them until you have sold them. (With some sale-or-return deals you do actually have to pay for all the goods supplied up front and then you'll be credited for any that you don't sell but with others, the label or distributor will give you the records and then you'll pay them for everything that you sell and return those that are unsold at the end of the agreed sale-or-return period.)

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. Record companies and wholesalers both generally offer 30 days credit. A distributor may allow you up to 60 days before you have to pay.

Discounts and incentives from suppliers

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

  • free delivery
  • retrospective incentive discounts (or free copies) for reaching sales targets
  • discounts on new releases
  • free copies, particularly of new singles
  • campaign discounts to support dealers' margins during special promotions and sale periods (for example at Christmas or for the Record Store Day promotion)
  • a returns allowance - for example, suppliers might agree to take back a small proportion of the stock you buy from them and give you a credit
  • volume discounts - for buying large quantities of goods

Some suppliers may also offer items such as free display stands, help with promotions and so on. These are likely to be related to the amount of business you put their way.

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