Credit & 30 days from invoice - A point in the right direction please

[Northern1]

Hello,

Simple question (coming from a newbie who's at the planning stage of setting up in business, I also apologise if this is a repeated subject):

If I were to provide business customers with 30 days from invoice, would I require a Consumer Credit Licence (customers being sole traders, partnerships & Ltd's - a B2B market place)?

I will give you the reason of why I ask:

I am in a position where customers can order up to 12 months worth of stock at a time. We will hold it for them until they are ready to "call it off" (in batches - as and when they choose), until they have exhausted all of their stock.

Customers will have the option to pay for the whole order up front, invoiced for the whole lot with the 30 days or, they can be invoiced as and when each batch is released allowing them to spread their payments over the duration of their order, within 12 months.

I'll apologise in advance if this sounds naive but i've spent so much time reading and trying to understand exactly what the Office of Fair Trading and the Consumer Credit Act of 1974 are actually saying that i've thrown a complete blank!

Thanks in advance and I will look forward to your responses.

Kind Regards
Martin

 

[simon field]

Forgive me if I've misunderstood your post, but I would start by advising that you never risk a years worth of outlay in the hope that the customer will buy them off you over the course of that year.

All sorts of things will go wrong imho.

Do you really need to offer credit?

I doubt you'd need a licence in any case, just solid T&C's.

 

[Northern1]

Hi Simon,

Thank you for your response, it is most appreciated.

It's not a years worth of outlay, it's a years worth of stock for the customer and therefore a relatively low financial risk to the business (unless I have a glut of customers who decide not to pay or delay payment at the same time).

For customers to order a years worth of stock would actually be typical, it is also a USP for a lot of businesses within my sector so I would need to do this to compete.

The businesses that I am expecting to trade with (medium to large organisations) would typically expect credit. I do have provisions in place to reduce any risks but like anyone else in business, I would much rather have the money in the bank (earning interest)!

In terms of the licence, I would need to know for sure as it is a legal requirement according to the OFT:

"Engaging in licensable credit activities without a credit licence is a criminal offence, and can result in a fine and/or imprisonment. Businesses cannot normally legally enforce a credit agreement if they are not licensed."

I'm probably being over cautious but I would rather play safe and know where I stand, legally...

Kind Regards
Martin

 

[Geoff T]

Hi Martin,

have a look at this - it might help:

http://www.fca.org.uk/clicked?gclid=CKXB89malbsCFVMPtAodNhsA9g

Managing the CCL moves from OFT to FCA from April... from what I've read so far, the bottom line will be that every business who needs a CCL will pay a hell of a lot more going forward than they used to...

 

[Northern1]

Thanks Geoff,

I did look at their website (and the OFT's website) but I ended up calling them for clarification (as I could not see anything that was close to the information I was requiring), the girl I spoke to didn't really want to help (I don't think she even cared!) and pushed me back to the OFT.

I spoke to the OFT who confirmed that you do not need a license if you're offering the standard 30days from invoice however, in my case I would need to refer this to the local trading standards (as this is considered a grey area) so that they can determine the correct procedure...

Thank you for helping!

Kind Regards
Martin

 

[Paul Kelly ICHYB]

Unless there is anything radical, you will not need a credit licence.

What is more of an issue is you keeping a years worth of stock for your client - that is one of the most riskiest things I have heard in years!

"(unless I have a glut of customers who decide not to pay or delay payment at the same time)" this is more of an reality today, than ever.

Look at all of the options in managing your finances and improving your cashflow.

 

[Northern1]

"What is more of an issue is you keeping a years worth of stock for your client - that is one of the most riskiest things I have heard in years!"

It can be risky (if you're not on top of your customers that is) but this is normal practice, my competitors do this all of the time.

We have provisions in place to reduce any risks and to protect our interests, not all customers will be requiring us to hold a years worth of stock.

We're expecting around 10 - 15% of our total business to order a years worth of stock whereas the rest of the business will be made up of approximately 5 - 10% of customers purchasing in bulk and around 75 - 80% in single (but regular) transactions.

We like to think that we will secure payment up front for most of our customers but as we will be dealing in a B2B market place we also expect a lot who will be wanting credit, hence the reason I wanted to understand more about the CCL.

Kind Regards
Martin

 

[Sparx]

I would stick with and enforce immediate payment upon order or within 30 days of invoice.

I would not let clients make ad-hoc payments when they decide to take the stock from you throughout the year (in batches as you called it).

You're opening yourself up for a world of debt chasing and wasting your time which could be better spent developing your company further,

 

[Fincia]

Good morning Martin,

Have you thought of some sort of sales ledger protection? There are other options in the market place now aside from expensive credit insurance which are ideal for start ups and ensure you are not alone when it comes to collections. They would also help to reduce your risk factor. If you wish to know if any of the options out there would suit your business then feel free to PM me and I can run them by you. Best of luck with the new venture.

Kind regards

Andrew