What do you need to know about buying from Wholesalers, what you should look for and what to avoid?
In the following paragraphs we will learn the basics of what to look for in a good wholesaler, what you need to know when approaching them to open an account and the questions that you will want answers to when considering using a selected wholesaler.
So what are Wholesalers ?
It may seem like a daft question, but what function does a wholesaler perform, that I would not get by dealing directly with a manufacturer? A wholesaler is a middle man, they stock many manufacturers products and retailers can buy from them to suit their requirements. But why not cut of the middle man and go direct, well, there are many reasons why it might not be possible or suitable to go direct, we will discuss the reasons why next.
So why not cut out the middle man and go direct and why would a manufacturer not supply me directly ?
- The manufacturers business model may mean that they only sell through wholesalers, if this is the case they will appoint wholesalers in each county so that they have total UK coverage. They may do this so that they are only selling to a small number of high value customers, they are getting total UK coverage and do not have to deal with lots of small accounts.
- It may be that the types of products that the manufacturer produces lends itself to supplying through wholesalers rather than direct.
- The manufacturer will supply direct but has a prohibitive minimum order value, so they only want to deal direct with larger accounts, smaller accounts are referred to their nearest wholesaler stockist.
- The manufacturer may have a contract with their wholesalers, whereby they will refer all direct enquiries to the nearest wholesaler.
- The manufacturer may only deal direct with the very largest accounts such are chain stores or supermarkets, smaller accounts are referred back to the wholesalers.
- The manufacturer may be small and not have the staff or resources to deal with numerous small accounts.
- If your business model is to use dropshippers, because of the infrastructure requirements of operating a dropship service, not all manufacturers are able to offer that service, whereas many wholesalers do.
- Many manufacturers may not deal with you unless you are accepted for a credit account, if you are a new business it is most likely that you would not be eligible for one and so may be referred back to the wholesalers for their products.
What are the advantages of buying through a wholesaler instead of going direct ?
- Wholesalers are generally located within easy reach, you can buy on a daily basis if required, you can even buy in to order rather than holding stock, depending on the product in question.
- They generally stock products from many manufacturers so you have a far wider range to choose from, if one manufacturers product is unavailable they may have an alternative manufacturers product in stock.
- Depending on the product, you may be able to buy in single unit quantities from a wholesaler, whereas it may only be full case quantities from the manufacturer.
- Most wholesalers have a much smaller minimum order value as compared to buying direct from the manufacturer, making it a more cost effective option.
- With them being local you can get stock at very short notice and of course deal with faulty returns in person, not having to wait return them to the manufacturer and wait for the credit notes to be processed.
- Manufacturers will offer discounts to wholesalers to shift more of their products, so you can quite often get some very good deals.
- Because of the buying power of large wholesalers it is quite often the case that the price that you are charges by the wholesaler, is very similar to what you would be charged by buying direct from the manufacturer, and is some cases less.
What are the advantages of buying direct from the manufacturer ?
- If you are able to buy in large enough quantities then you may be able to get a better price.
- A wholesaler may not stock a manufacturers entire product range, so buying direct give you access to all of their range.
- You may be able to get hold of marketing materials that you may not have been readily available from the wholesalers.
- Quicker access to new product ranges and promotions.
- Increased availability as wholesalers may take longer to restock if lines go out of stock.
- Depending on your status you may get better credit terms from the manufacturer.
Deciding which option is best for you will depend on many of the factors above, and may even result in a mix of buying direct and using wholesalers for others.
Dealing with wholesalers and opening accounts ?
For those new to buying from wholesalers, they are generally easy to deal with, but there a few things that you need to know.
Generally wholesalers only sell to resellers i.e. those that are in business and are planning to resell the goods that they buy, they will not sell to the end user, this protects you the reseller as you do not want your customers being able to buy from wholesaler.
Some wholesalers do sell to the public but have separate price structures for resellers, typically a discount for the displayed price.
With this in mind the wholesaler may require certain information from you when you want to open an account. Trade resellers may be required to certain information to prove that they are a reseller in order to be granted an account, these may include a copy of a business letterhead, VAT registration ( if applicable), company registration number (if applicable), bank statement, utility bill for business premises (if applicable), copy of an invoice from an existing supplier etc. If you are just setting up you may not have the documents that they require, if this is the case it is best to talk to them and explain that you are a start up, they will generally allow the account to be opened, they may require a larger first order value to prove that you are planning to resell, after that their normal terms will apply.
They may also monitor your purchase to ensure they are consistent with a reseller and not for personal use.
VAT is always an issue for start ups, so what is it and do I need to account for it straight away ?
Vat is essentially quite a simple tax, but in practice can be quite daunting and confusing, so there a few things that you should know.
It is a tax on the sale of goods, the general public pay VAT on their purchases every day, quite often without even being aware of it, because they do not have to account for it or reclaim it so they can ignore it.
As a business it is quite different, if your taxable turnover (taxable turnover is the total value of everything you sell that isn’t exempt from VAT) you must register for VAT, the current threshold for registration is £82,000.
As a business if you buy goods from a UK wholesaler and you are based in the UK you will be charged VAT, there is no way around that, the only reason that VAT would not be charged is if the wholesaler was exporting the goods outside the UK, so as a UK based buyer you will be charged VAT whether you are VAT registered or not. What happens next is dependent on whether you are VAT registered or not:
- If you are not VAT registered you cannot reclaim the vat charged by the wholesaler (input VAT), but you are also not required to charge VAT on the sales to your customers (output VAT).
- If you are VAT registered you can reclaim the wholesaler input VAT on purcahses by filing a quarterly VAT return with HMRC (Revenue & Customs), but you must also charge your customers VAT on the sales that you make.
Some make the mistake of thinking that by registering for VAT they can reclaim the VAT and therefore be financially better off, but this is not the case, unless you have a specific reason for registering for VAT before you reach the threshold, you should not, the disadvantage of having to charge output VAT far outweighs the reclaiming of input VAT. In short you are better off waiting until you reach the threshold before registering. Full details can be found online Click Here.