Central billing
From Wikipedia, the free encyclopedia
Central billing is a phrase used to describe the process of using the collective buying power of independent businesses to extract discounts from suppliers. It was pioneered in the convenience grocery sector convenience grocery sector in Europe.
The process is orchestrated by a middleman (wholesaler) who takes certain risks in order to profit from the process.[1]
Typical example
A convenience store retailer takes delivery every day of bread, milk and other perishable items. Instead of paying cash they put them on the central billing account they hold with their wholesaler. At the end of the month they receive a bill from their wholesaler for all their purchases for the month. The wholesaler in turn pays the individual suppliers.
Benefits to supplier
The supplier still has to make multiple deliveries but instead of having to worry about collecting money from many individual stores it only collects one payment from the wholesaler. By this process the credit risk is removed from the supplier and placed on the wholesaler. In return for this the supplier makes a payment to the wholesaler to reflect these benefits, called a rebate or Long Term Agreement.
Benefit to retailer
The retailer benefits simply by the fact their admin is simplified. Instead of having to monitor many daily payments they simply have to write one cheque a month for potentially thousands of transactions. They pay the wholesaler who in turn pays the suppliers. In addition, they typically receive a rebate (LTA) on their purchases.