Central billing is a phrase used to describe the process of using the

collective buying power Collective buying power is the ability of a group of consumers to leverage the group size in exchange for discounts. In the marketplace Many different companies have used this concept to build business plans. Warehouse clubs function in a simi ...

of independent

businesses Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...

to extract discounts from suppliers. It was pioneered in the convenience grocery sector convenience grocery sector in

Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...

How it works

The process is orchestrated by a middleman (

wholesaler Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...

) who takes certain risks in order to profit from the process.

Typical example

A convenience store retailer takes delivery every day of bread,

milk Milk is a white liquid food produced by the mammary glands of mammals. It is the primary source of nutrition for young mammals (including breastfed human infants) before they are able to digest solid food. Immune factors and immune-modula ...

and other perishable items. Instead of paying

cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...

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 A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...

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.

Benefit to wholesaler

The wholesaler benefits in a number of ways. Firstly they do not have to pass on in full all the LTA

payments A payment is the voluntary tender of money or its equivalent or of things of value by one party (such as a person or company) to another in exchange for goods, or services provided by them, or to fulfill a legal obligation. The party making the ...

they receive. Secondly they offer a valuable service to retailers to whom they also sell other items to through their traditional wholesale channels. They do however assume the risk should the retailer fail to pay.

Centralised distribution

In many cases central billing has been superseded by central distribution. Under the centralised distribution model a wholesaler will provide everything their customer needs via their own supply chain. This eradicates the need for supplier deliveries and renders central billing redundant.

References

Procurement {{retailing-stub