How to buy stock on credit without choking your cash

Stock taken on credit is not stock you own. It is a promise with a date on it. Write the bill the day the goods arrive, keep one calendar of what leaves this week, and compare two speeds: how fast your goods sell against how fast your bills fall due. Everything else follows from those two numbers.

A full shelf is not the same as a paid shelf

Walk into a shop at eight in the morning and it looks prosperous. Racks loaded, cartons stacked at the back, the new soap scheme in the window. It feels like wealth.

Then Thursday arrives and three suppliers arrive with it, and the same shop has to find Rs 60,000 by evening. Nothing went wrong. The goods on that shelf were bought with somebody else's money, and the somebody else has a date in his diary.

This is the quiet trap of a small shop. Udhaar you give out is visible, because a customer's name is attached to it and it worries you. Udhaar you take from your suppliers is invisible, because it arrived as goods you were happy to receive. It sits in a stack of paper slips near the till, and it grows.

Supplier credit itself is not the problem. It is the cheapest working capital a shop will ever get: no forms, no security, no office to visit. It only turns dangerous when nobody has written down what is owed and when. A shop does not usually fail because it bought too much. It fails because it did not know what was leaving on Thursday.

Write the bill the day the goods arrive

Not on the weekend, not when the pile gets annoying. The day the van leaves.

What to write the day the goods arrive

• The supplier's name, spelled the same way every time
• Bill number and bill date
• The full amount, before any adjustment
• The date the payment is due
• What was actually delivered, counted by you
• Anything short, damaged or sent back, same day
• The rate, if it moved since last time
• Any advance already paid against this bill

Ninety seconds, eight lines, and every argument you would have had two months later disappears. The one that matters most is the date the payment is due, because that single field is what turns a heap of slips into a calendar you can actually plan against.

The second one people skip is what was actually delivered, counted. A bill says twelve cartons. The van left ten. If you write the bill without counting, you have just agreed to pay for two cartons that never came into your shop, and by the time you notice, the driver, the loader and the memory of that morning are all long gone.

Anything short, damaged, expired or returned goes on the same line the same day, with the amount adjusted. Never let it float as "we will settle it next time". Next time is exactly when neither of you remembers. If your stock records already track what came in, the bill and the delivery can be checked against each other in one look.

Know what is leaving this week

Ask most shopkeepers what they owe and they will say "about two lakh". Ask what leaves this week and they go quiet. The second question is the one that decides whether Thursday is calm or ugly.

Say: what leaves this shop this week

1. MonTea and biscuit distributorRs 18,000Due
2. WedFlour mill, half of last week's billRs 25,000Due
3. ThuCold drinks van, paid on deliveryRs 12,000Due
4. FriSoap and detergent supplierRs 9,500Due
5. SatShop rentRs 30,000Due

Those are example numbers. What matters is that you can read them on Monday morning, not discover them on Thursday night when the van is already parked outside.

A week you can see gives you options while the options still exist. You can push Wednesday's half payment to Saturday by talking to the mill on Monday. You can hold back Rs 20,000 from the day's takings instead of spending it on a slow-moving line. You can decide not to take a fresh delivery this week at all. None of those choices are available at eight o'clock on Thursday evening with a driver standing at your counter.

Keep it as one list, in date order, across every supplier. Not one page per supplier, because a page per supplier tells you what you owe each of them and hides the only thing you actually need, which is what all of them together want from you this week.

Two speeds decide how much credit you can carry

Here is the arithmetic that stops a shop from overtrading. It takes one minute and almost nobody does it.

Say: how much supplier credit this shop can carry

Goods bought on credit each monthRs 400,000

Days the supplier gives you21 days

Days the goods take to sell28 days

The 7-day gap, funded by youRs 93,000

Cash the shop actually keepsRs 60,000

Short, every single monthRs 33,000

Example numbers only. When goods sell slower than bills fall due, the difference comes out of your own pocket every month, and no amount of extra selling closes it.

Two speeds, and only two. How many days your goods take to sell, and how many days your supplier gives you before he wants the money. When the goods sell faster than the bill falls due, the supplier is funding your shop and your cash never feels tight. When the bill falls due first, you are funding your supplier, out of a till that also has to pay rent, salary and your own house.

Most shops discover this the wrong way round. Sales are good, the shelf keeps filling, and the cash keeps disappearing. Nothing is wrong with the shop. There is simply a gap between two dates, and it has to be paid for by somebody.

If you are stuck in that gap, there are only four honest ways out: buy smaller quantities more often, negotiate a longer date, clear the slow lines that are sitting on your shelf eating the credit, or bring in your own money and stop pretending the shop is funding itself. Reading your real profit tells you which of the four you are actually looking at.

Pay the ones who keep the shop running first

When there is not enough for everybody this week, the order is not first come, first served. It is not the loudest one either.

Pay the supplier whose goods sell fastest. If tea and biscuits turn over every ten days, that van is your daily sale. Delay him and the shelf goes empty, the customers go next door, and you have swapped a payment problem for a customer problem, which is much more expensive.

Pay the one who gives you the best terms. A supplier who has trusted you for four years with three weeks of credit is worth protecting. Terms are earned slowly and lost in one bad month of silence.

Pay in full where a small payment buys nothing. Rs 2,000 against a Rs 40,000 bill impresses nobody and leaves you with Rs 2,000 less. Either make a payment large enough to be a real gesture, or make a phone call instead and keep the cash.

Never pay the same bill twice. Mark it paid the moment the money leaves, with the bill number and how it was paid. In a shop where three people take deliveries, a bill paid in cash and then paid again by transfer is not a rare accident.

When you cannot pay on the date

This part is short, and it is the difference between a supplier you keep and a supplier who stops the van.

Call two days before the date, not two days after. What you say is simple and specific: how much you can pay now, when the rest comes, and one sentence of the reason. "Rs 15,000 on Thursday, the other Rs 25,000 on the 30th, sales were slow after the rain."

Almost every distributor will take that. What they will not take is silence, because silence is what they hear from every shop that is about to stop paying entirely. Your call sounds nothing like that, and it costs you nothing.

Then keep the promise you made, even a small one. A shop that pays Rs 15,000 on the exact day it said keeps its credit line. A shop that promises the whole Rs 40,000 and sends nothing has just taught the distributor to demand cash on delivery, and cash on delivery is how small shops die.

Write down what you agreed on the same slip. Two weeks later neither of you will remember whether it was the 30th or the 31st, and that is where good relationships turn into bad ones.

Read both sides of the ledger together

There is one last habit that changes how a shop feels, and it takes five minutes on a Sunday.

Put what customers owe you and what you owe your suppliers on the same page. Most shopkeepers keep the first list carefully and the second in a bulldog clip. Side by side, they answer a question neither one answers alone: is money coming in fast enough to cover what goes out, and if not, whose payment do I need to chase this week?

That is also the moment the collection stops being a chore and becomes a plan. You are not chasing an old balance because you are annoyed. You are chasing Rs 18,000 because the biscuit van comes on Monday. Wasoolo is free to download and keeps both sides in one place, but the discipline is the point and a notebook with two columns does it too.

Common questions

My supplier only gives me a delivery slip, not a proper bill. What do I record?

Record the slip exactly as if it were a bill: his name, the slip number, the date, what was delivered, and the amount you both agreed. Then ask for a monthly statement and check it against your own lines. A supplier who cannot give you a bill still keeps a record of his own, and the only protection you have is a record that can be put next to his.

Should I take goods on credit at all, or only buy what I can pay for?

Take it, if you write it down. Supplier credit is the cheapest funding a small shop can get, and refusing it usually means a thinner shelf and lost sales. The rule is not to avoid credit, it is to never owe more than your own goods can pay back before the date arrives.

A supplier offers a discount for paying on delivery. Is that worth taking?

Work it out rather than guessing. A 2% discount on a Rs 50,000 delivery is Rs 1,000 in your pocket today, so the question is simply whether that Rs 1,000 is worth more to you than having Rs 50,000 in the shop for three more weeks. When cash is tight, keep the cash. When the shop is comfortable, take the discount every time.

How do I handle goods returned after I have already recorded the bill?

Add a return line against the same bill on the day the goods go back, with the amount and the reason, and get the supplier's man to sign or send a message confirming it. Never simply reduce the original amount, because then your record and his no longer show the same history, and the next statement will not match.

I take deliveries at the shop but my brother pays the suppliers. How do we avoid confusion?

One list, visible to both of you, where the person who receives the goods writes the bill and the person who pays marks it paid the same day with how it was paid. Splitting the two jobs is fine and normal. Splitting them across two notebooks is how one bill gets paid twice and another gets missed entirely.

How far ahead should I be able to see my payments?

Two weeks is enough for most shops and one week is the minimum. Anything less and you are reacting rather than deciding. If you can see two weeks, you can time a big delivery, hold a slow line back, or make one phone call early, and all three of those cost far less than being surprised on a Thursday evening.