Can you run a busy business without credit?

[Things change I've changed]

The business (restaurant) that I work for over the last year has slowly been taken over by a new owner, I've been helping him with the paper work, recently he has asked me to start canceling the credit we have with our suppliers and wants us to pay cheque on delivery or as and when we need supplies or stock, we are a very busy restaurant, we have many different trade accounts with suppliers including our local DIY store (which we use regularly), I must admit I find it a little odd that the new owner wants to conduct business in this fashion when for many years we've just paid the monthly statements from each supplier, at the moment for many bills he goes to the post office and sends a check first class, why not BACs it across? what are peoples thoughts on this?

I said to him last night that if you want us to conduct business in this way we really need a company debit card and cheque book issued otherwise it's a pain having to ask for it all the time or claim money back off receipts, I personally find it a waste of time having to pay for everything as you go, just check the monthly statement when it comes and pay, no?

 

[PiKe]

I agree with everything you said, new owner seems a bit backwards tbh.

 

[MichaelAwkward]

From a cash flow perspective, that makes no sense and is potentially a risk to the business.

Also, FYI, I think HMRC will take a different view to him on what allowables expenses are with regards to tax deductions. Having to claim everything back through expenses because the owner is being an idiot is not an unavoidable business expense.

 

[Raymond Lin]

You don’t need to cancel the credits surely, instead of getting the supplier to tell you that you have hit your credit limit, you just do better bookkeeping yourself by starting to pay off all your debts and pay your goods on delivery. It’s a bit like having an overdraft but just don’t use it. You don’t need to actually have to cancel anything. I mean do you want the driver to not deliver if no one is there to pay on the spot?

I have to tell you that suppliers hate that because almost everyone else trades on credit and the supplier keeps track on your spending. The way your boss is doing is he thinks he can do it better. What happens is inevitable there will be many times when say a driver, either new driver or temp who just drops the delivery off and leaves without picking up the cheque. Or your boss ran out of cheques that day and because his habit is that “I always pay on the same day” and that’s his mindset, the fact that he missed it will not cross his mind and he (and people general) will be convinced he is correct and refuse to pay what he missed in arrears. “We always pay on cash” is the excuse, well that day you didn’t!

Also if you need to return or refund items, this will be a pain in the butt, with credit you just deduct it off your next payment. If you’ve already paid, and no credit, do you want them to write you a cheque, through their purchase ledger which is separate to sales so it’ll take absolutely ages.

I can tell you that he is asking for a lot of headaches and trouble for no reasons, just pay it off weekly with your supplier.

 

[Etheco]

The sooner cheques are gone the better! Absolutely hate having to deal with them and because we don't get many they charge us to put them in the bank.

 

[Things change I've changed]

You don’t need to cancel the credits surely, instead of getting the supplier to tell you that you have hit your credit limit, you just do better bookkeeping yourself by starting to pay off all your debts and pay your goods on delivery. It’s a bit like having an overdraft but just don’t use it. You don’t need to actually have to cancel anything. I mean do you want the driver to not deliver if no one is there to pay on the spot?

I have to tell you that suppliers hate that because almost everyone else trades on credit and the supplier keeps track on your spending. The way your boss is doing is he thinks he can do it better. What happens is inevitable there will be many times when say a driver, either new driver or temp who just drops the delivery off and leaves without picking up the cheque. Or your boss ran out of cheques that day and because his habit is that “I always pay on the same day” and that’s his mindset, the fact that he missed it will not cross his mind and he (and people general) will be convinced he is correct and refuse to pay what he missed in arrears. “We always pay on cash” is the excuse, well that day you didn’t!

Also if you need to return or refund items, this will be a pain in the butt, with credit you just deduct it off your next payment. If you’ve already paid, and no credit, do you want them to write you a cheque, through their purchase ledger which is separate to sales so it’ll take absolutely ages.

Thanks, I agree it's better to keep the credit but stay on top of paying for goods as soon as they are delivered, also we regularly need to refund/credit items, only last night I had to have two items credited, I will try my best to put this across to the new owner.

 

[Raymond Lin]

Thanks, I agree it's better to keep the credit but stay on top of paying for goods as soon as they are delivered, also we regularly need to refund/credit items, only last night I had to have two items credited, I will try my best to put this across to the new owner.

Just get him to pay weekly, in full.

Starting with next week, call up the supplier and pay everything off, then call back every Monday doing the same.