Industry sector: Retail and wholesale

Shoe shop: Payments to creditors

Shoe retailers usually stock summer and winter ranges of footwear. Each range is normally selected six months in advance and then 'topped up' by repeat ordering. This method of stock buying means that you will have a lot of your capital tied up in stock during the year. It also means that your business has to have a capable buyer - either yourself or an employee - who can identify the shoes that customers will want. Bear in mind that demand for footwear follows fashion trends and your buyer will need to be able to predict which ranges and styles will be popular.

You may purchase shoes from several different suppliers. Some of these will require you to pay them when you buy the shoes and others will offer you a period of credit. When you owe your suppliers money, they become your creditors. 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 convenience - and to get the best terms of trade - it is usually preferrable to set up accounts with all of your suppliers, who might include:

  • shoe manufacturers
  • specialist wholesalers
  • importers

You may also buy accessories like laces and shoe care products from specialist manufacturers and wholesalers. You might consider importing your own footwear ranges from, for example, Italian manufacturers. This can be a good way of supplying brands that competitors don't stock. You might also place orders at trade fairs and exhibitions.

Although some major distributors may be able to supply most of the items you sell, you may find that you need to deal with quite a large number of different suppliers to keep your shop fully stocked with popular lines.

You might consider belonging to a buying group so that you benefit from greater buying power. Visit the Stag buying group website for details of the discounts you might get from leading footwear brands.

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 manufacturers may sometimes offer special payment schedules with up to 90 days credit.

Many manufacturers stipulate minimum order sizes, while wholesalers generally accept orders of any size.

Discounts from suppliers

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

  • prompt settlement discounts - up to 5% discount for paying an invoice within, say, seven days
  • volume discounts - for buying large quantities of goods
  • reductions on slight seconds
  • return of faulty goods
  • free delivery

Consider whether it is worth taking 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 stock will sell, so it may be difficult to pay your suppliers before you have made substantial sales. In that instance it would be advisable to choose the longest credit period available.

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