What Is Central Billing?
Central billing is a procurement technique in which independent companies purchase inventory from a wholesaler rather than individual suppliers. This popular method of business allows firms to leverage collective buying power, resulting in bulk pricing discounts. Central billing not only helps stores keep prices low and profits high, but also simplifies the billing and administrative process for both businesses and their suppliers.
In a traditional billing scenario, stores take inventory from individual suppliers. For example, a convenience store receives deliveries of beverages, food, candy, milk, and other goods. This store likely purchases only a small amount of each of these products, and thus receives very few discounts from suppliers. The store owner is forced to track each of his accounts separately, and write dozens or hundreds of checks each month for each supplier. The supplier must also deal with a large number of buyers, including invoicing and collecting from each individual business.
A central billing scenario allows companies to buy and sell goods using a much more simple process. Under central billing, a wholesaler acts as the middleman between retailers and suppliers. Each store that works with this wholesaler maintains his own separate account, to which he can bill all inventory for the month. At the end of the month, each supplier sends the wholesaler a single bill for all deliveries to stores this wholesaler represents. The wholesaler in turn sends a single invoice to each store, reflecting all purchases made on that store's account for the entire month.
For individual stores and businesses, central billing greatly simplifies the accounting process each month. The store writes just a single check to the wholesaler instead of writing checks to each supplier. For product suppliers, central billing eliminates the need to collect and process checks from each store, and allows the supplier to process one check from the wholesaler each month. By using a wholesaler, suppliers also reduce the time and money spent on collections, as well as their risk of non-payment.
From the supplier's point of view, the wholesaler is buying large quantities of goods compared to the small volumes purchased by individual stores. This encourages suppliers to offer discounts based on these high-volume purchases in an effort to keep the wholesaler's business. These discounts keep prices low and allow stores to remain profitable while still paying the wholesaler for their services.
In many central billing applications, the wholesaler serves as a middleman between supplier and buyer. In some cases, however, this wholesaler may decide to act as a warehouse of sorts. Instead of simply handling invoices, the wholesaler purchases goods in bulk and sells them to stores, resulting in higher profit margins for the wholesale company.
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