Wholesale payment terms and credit risk on an unknown shop

Aug 27
3 min read

Updated: 2 days ago

Introduction

Wholesale asks you to manufacture goods, ship them to a business you have never met, and wait a month or two to be paid. Every part of that is funded by you.

Small suppliers concentrate on winning the order and give almost no thought to whether it will be paid. The first unrecoverable invoice is usually the moment the risk becomes visible, and by then the goods are gone.

1. Wholesale payment terms and credit risk are the same decision

Offering credit is extending an unsecured loan.

When you agree thirty days, you are lending the value of the goods to a business whose finances you have not seen. That is a commercial decision deserving the same care as the pricing, and it is routinely made without any assessment at all.

2. Start new accounts on payment before dispatch

The simplest and most effective protection available.

Proforma payment for the opening order, moving to credit terms once the account has a payment history. Most legitimate retailers accept this from a new supplier without objection, and the ones who react badly have told you something useful.

3. Check who you are actually dealing with

Basic verification prevents the majority of losses.

The registered company name and number, how long it has traded, publicly filed accounts if available, whether the shop physically exists, and trade references from other suppliers. This is an hour's work against the value of the goods you are about to ship.

4. Set a credit limit per account and hold it

Losses concentrate where an account grew without anyone noticing.

Decide the maximum you are willing to have outstanding with each customer, and do not ship beyond it while an invoice is overdue. A shop that keeps ordering while not paying is the classic pattern of a business in difficulty.

5. Put your terms in writing and get them accepted

Verbal terms are unenforceable and forgotten.

Payment period, late payment interest, ownership of goods until paid, and what happens on default. A signed or explicitly accepted set of terms is what you rely on if the relationship deteriorates.

6. Invoice immediately and chase on a schedule

Most late payment is administrative rather than deliberate.

The invoice goes out with the goods, a reminder before the due date, and a defined escalation afterwards. Suppliers who chase promptly and consistently are paid first, and those who do not are paid last, by every retailer.

7. Watch the warning signs

Failing retailers behave in recognisable ways.

Payments slowing, part payments, disputes appearing on old invoices, unusually large orders, silence, or a change of contact. Any of these should stop further shipments until the position is clear rather than prompting hope that the next order fixes it.

8. Be prepared to decline an order

The discipline that protects the business.

An order you cannot assess, from a shop that will not accept proforma terms or provide references, is a risk rather than an opportunity. Turning it down is uncomfortable and considerably cheaper than manufacturing goods you are never paid for.

9. Track debtor days and concentration by customer

Two figures that describe your actual exposure.

Average days to payment per account, and what proportion of your outstanding balance sits with your largest customer. High concentration is the serious risk, because a single failure can be terminal rather than merely painful.

Conclusion

Treat offering credit as lending money, because that is precisely what shipping goods on thirty-day terms amounts to.

Start new accounts on proforma payment, verify who you are dealing with before shipping, set and enforce a credit limit per account, get written terms accepted, invoice immediately and chase on a fixed schedule, act on the warning signs of a struggling retailer, decline orders you cannot assess, and monitor debtor days alongside how much of your exposure sits with one customer.