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. You will probably be setting up accounts with various major suppliers, including:
- primary producers like farmers and growers
- importers and distributors
Setting up an account
To set up an account you will be asked to provide bank and trade references and 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 generally be invoiced at monthly intervals, and expected to pay within a certain number of days of receiving the invoice.
In some cases you may be able to negotiate various discounts and allowances from your suppliers, for example:
- retrospective rebates every six months or so (sometimes called over-riders)
- volume discounts
- early settlement discounts
- funding for promotions
- allowances for placing product ranges in prime positions
- special offers
It is important that you negotiate the best terms possible from your suppliers so that you can offer your customers cheap prices while protecting your margins.
Your proposed business may or may not require packaging. If you will require it you should make an estimate of the monthly cost and include that in your estimate of Payments to creditors or Cash purchases, depending on how you will buy it.
In some sectors buying groups have been set up which enable individual businesses to benefit from the lower prices that can be obtained from suppliers when goods are bought in very large quantities. Contact the trade association for your sector to see if buying groups have been formed for your type of business.