Help with offering credit

[Andycharger]

Hello,

How would I offer credit to retail shops - I plan on opening a small wholesaler and wish to offer 30 days credit. I know Barclays offer a credit check service but how to I actually offer credit terms legally

Any help would be great

 

[Carl S]

Hi Andycharger,

Most shops would expect some form of credit in my view so this is a wise choice, how much you give them is totally up to you and what suits your business, no legal requirement. 30 days is a fairly good UK standard, although 7 or 15 days is also common. Depending on how much you invoice, you may want to think about if it's termed from invoice date or from month of invoice. If you invoice a customer a number of invoices a month and these are consolidated to due by month of invoice it means you should expect one payment a month rather than a number of smaller payments through the month. (But that depends on how cash rich your business is and obviously how it fits with you). Also consider additional discount for early settlement within the terms if you want to reduce risk and speed up cash flow?

For documentation:-
We have the agreement written up and an application form for a credit account with us. The form will cover the basic information needed for credit checking, including directors, address, contact information etc etc. Also it covers agreement our terms and conditions such as ownership of goods, any interest charges we may charge if payment is not received within agreed terms and much more. This could also be covered off when you discuss the sale etc, always get a signed agreement in place, not just for agreement to credit terms and payment, but also any other T and C's you may want to impose. That way if you if anything does go bad you have a better starting point for legal/ administrators. Also worth ensuring you have a retention of title clause in your T and C's. Depending on the clause written, it would mean you ensure ownership of the products either outstanding (invoice not paid) or sold to them (on invoices paid).

Credit checking is very wise, many companies offer a service and they vary a great deal in terms of price and quality, but the service they provide is invaluable in trying to avoid bad debt. Shop around before agreeing to sign up. A lot of place do free trials as well so you can check they are suitable for your business. You'll probably use it more of a guidance than a definitive answer, there is an element of gamble when giving credit to any customer and these agencies are usually conservative in their suggestions. They certainly do give a good starting point though- Also in addition to this, if you know how to read balance sheets and profit and loss you can get these from companies house for £1-£2 and can also give you some additional comfort.

Finally, make sure you have a good sales ledger record of invoices outstanding and a credit control process in place to handle these. If you've one or two invoices a month/ week this should be something fairly easy to manage, but as you grow you need to think about proper administration of this, either additional resource internally, or other services like factoring, or outsourcing.

Hope that helps to get you started and feel free to drop me any PM's if you need more help and guidance. I'm new to here as I'm just forming an outsourcing collections business- so this is within my specialist field, and I'll be happy to advise as best I can.

Thanks
Carl

 

[Pish_Pash]

I'd like to start selling wholesale, but it's this very issue that stop me. It just seems madness that I have to pony up for my goods at the point of purchase, yet others expect me to wait 30 days to settle. Boiling it down, you are letting others leverage on your ability to either loan money or pay cash for the products you sell. Talk about poncing.

I guess I;m not cut out for wholesale - for those B2B deals I've done, I've actually made my buyers do a direct bank transfer (no credit/debit card charges coming my way!) ...i.e. if I have to pay for my goods straight away...then IMHO so does everyone else!!!

 

[Carl S]

Hi Pish Pash

Have you asked your supplier for a credit account?

It's usual for distributors to actually have longer terms in some industry's (say 60 days) due to the fact they they offer terms themselves.

Credit is critical for modern business. The larger you grow the more you will utilise it in the b2b environment.

Ps though. Always great to get cash upfront by bacs, if it works for your business!

Thanks
Carl

 

[Pish_Pash]

Hi Pish Pash

Have you asked your supplier for a credit account?

Carl

My supplier is in Asia....it's pretty apparent that they aren't keen to release goods without them being paid for at the point of purchase. For example I normally order via sea every 2-3 months but recently needed a small air order & to save having to incur costly currency exchange costs (i.e. for small amounts), I therefore suggested paying when placed my next larger sea order (essentially asking for them to extend a line of credit until my next payment...which would have been in about 4 weeks later)...they replied they'd prefer me to pay immediately. I have no issue with that, but I'll be damned if I'm then going to allow others to pay me in 4 weeks time...I'm in online retail not online banking!

 

[businessfunding]

I would think very hard about offering credit unless it is essential. try to consider alternative ways to sweeten the deal and encourage them to pay COD (or preferably with order)

By offering credit terms you are adding an extra layer of admin and creating potential bad debt risk.

If you are selling to small retailers many will be sole traders or partnerships so you will be dependent on them to provide you with information. Even Ltd cos are only obliged to file very limited information.

If you are selling to the 'big boys' then in reality they will dictate terms - it is up to to to decide whether this is viable for you.

If you do go this route, be sure to put in place a robust end-to-end credit control process and to look at your cashflow very closely - 30 days seldom means 30 days.

 

[Shaun_Pearce]

I just want to put my name in the frame here as a "Business Credit Risk Consultant". On and off I've been in the credit checking game for nearly 4 years. I see all kinds of debts hitting companies because they fail to carefully check out the company before offering credit.

If you're interested I can arrange some free access to the Creditsafe website so you can see the level of information that's available to help you in making those important decisions.

Information Provided

• CCJ Information
• Payment History
• Director Details
• Credit Limit
• Credit Rating
• 5 years accounts
• Holding & subsidiary companies
• Company Identity
• Image Documents

We also have an amazing tool to help manage your sales ledger using our 3D Ledger to help identify the following:

• Manage and analyse your day to day risk
• Analyse your ledger by industry sectors
• Review days beyond terms and credit ratings
• Prioritise your collections
• Set cash collection targets
• Identify gaps in your ledger
• Profile your customers
• Gain insight into your best payers

Let me know if you'd like to take a look drop me a message and I'll arrange some login details for you. I hope it's okay to mention I can generate trial login details for anyone who want to give it go. The reports a live too so you can see how it works in live time.

Cheers

 

[Geoff T]

Just curious Shaun... How come you've got credit safe in French?

 

[Shaun_Pearce]

Haha Geoff, I'm so sorry as we have international offices I've copied the wrong link in to the code here. I would amend it but the edit link has now been removed.

 

[Peanut Butter Man]

I asked a very similar question here just s few days ago about the need to offer my future retail customers a line of credit. My volumes are likely to be small (around 5 cases) and not of a massive cost. I was of a mind that goods should be paid for on delivery or on order and this was confirmed as acceptable by members here. I agree that if you got lucky (If you want to call it lucky) to deal with say Tesco, then you have no choice but to wait to be paid... but as you say, you pay for your goods upfront why not your customers.

 

[Carl S]

I asked a very similar question here just s few days ago about the need to offer my future retail customers a line of credit. My volumes are likely to be small (around 5 cases) and not of a massive cost. I was of a mind that goods should be paid for on delivery or on order and this was confirmed as acceptable by members here. I agree that if you got lucky (If you want to call it lucky) to deal with say Tesco, then you have no choice but to wait to be paid... but as you say, you pay for your goods upfront why not your customers.

And I agree. Wherever possible, get paid upfront, most definitely the safest way and the first port of call with any sale to retailers you make. You're quite correct with Tesco's and general mass market retailers, they will dictate their terms (and change them when they feel like it) and are also quite an administrative drag to work with, I suppose the upside is that market/exposure that you get working with them.

on a separate note..intrigued by your product.. what's the link to your website?

 

[Peanut Butter Man]

Hi Carl... I have bored everyone to death here (almost) about my new flavoured peanut butters. Im in the middle of building the site right now but feel free to register and when launched you will see it in all it's glory lol

www.funkynutco.com

 

[Shaun_Pearce]

Registered. Good luck buddy!

 

[Peanut Butter Man]

Thanks all

 

[Carl S]

Ditto... Honey & sea salt is really appealing to me right now.. As I tuck into my standard peanut butter sandwich (seriously!).

 

[Peanut Butter Man]

I love the sea salt & black pepper ... I guess I shouldn't have favourites... But you like what you like

 

[Shaun_Pearce]

Good golly... I've suddenly got the desire to try Peanut Butter and Nutella in the same sarnie!

Does it exist?

 

[Peanut Butter Man]

It will do soon ;-)