Being on good terms with suppliers could translate into special deals or preferential treatment. Your suppliers may also give you greater leeway in the face of a cash shortage or when you need extra time to pay.
Build the relationship
An efficient payment policy is a vital part of building a strong, trust-based relationship with suppliers and creditors. If an employee is responsible for bill payment, make sure your payment policy is followed. Unnecessarily delayed payments could undermine the goodwill you’re trying to establish.
Strengthen your supplier relationships further by inviting them to events, sending thank you cards or emails, and visiting their premises.
Take advantage of discounts
Find out what discounts each supplier offers for early or prompt payment. No discount? Try asking for one. Asking reinforces the fact that you are a reliable and prompt payer, and you could be rewarded with a discount.
If you sell your products on a cash basis, you could pay quickly in return for settlement discounts. Alternatively, pay the invoice using your credit card and earn loyalty rewards.
Be flexible
Some suppliers require cash upfront or a deposit. Once you’ve established history, they might offer credit terms. Be prepared to trade credit terms for other concessions, such as lower prices.
When negotiating, explain the benefits you can offer so your suppliers will support you in the future. For instance, if you have a record of prompt payments, your suppliers should return the favor someday. If negotiating extra credit, tell the suppliers what they will get in return, such as steady orders or a commitment not to look for alternative suppliers.
Review your terms
Asking for extra credit from a supplier is fine, and most suppliers will support you. Regularly review each supplier’s terms, and find out if other suppliers can offer you better terms. If so, ask your existing supplier to match the offer or improve its terms.
It’s acceptable to ask for benefits in return for giving suppliers what they want. For example, you might negotiate an enhanced service in return for placing regular orders or paying on shorter terms.
Recognize other suppliers
Broaden your view to include all creditors vital to the survival and growth of your business and then develop tactics to win the support of each one. For example,
- Treat your small business banker as an investor, by providing regular management accounts in an agreed useful format.
- Make sure you are aware of the consequences if you were unable to make a payment on time. At what point would a leasing company repossess the equipment?
Prioritize your suppliers
Which suppliers are critical? For example, your landlord may have the power to evict you for non-payment. IT suppliers who regularly maintain your IT systems are often high on the list, as trying out a new supplier can be risky. Suppliers of commodities that you can buy elsewhere are usually low priorities.
Which creditors are likely to be inflexible and could seriously damage your business as a result? Plan on getting closer to them.
Building relationships can be harder in large, impersonal businesses. If you hold back payment because of a dispute, you may be penalized immediately. You may have to pay first and argue your case afterward. Always record who spoke with and what you discussed.
Communicate with suppliers
Will your supplier go the extra mile when you need rush delivery or extended credit? Building a good relationship can make all the difference.
Involve suppliers in your business so that they understand your needs. Suppliers are often good at brainstorming ideas on how to improve your product or your business as a whole, as they supply other businesses like yours.
Open communication channels can address issues as soon as they occur and prevent small problems from becoming large ones.
Keep informed about supplier developments. For example, a change of ownership can mean a drastic reduction in the credit a new owner extends to you.
Good relationships with sales reps can translate into advance notice on special deals, sneak previews of new products, or the opportunity to buy discontinued lines before your competitors. They may also be prepared to take back some excess stock to help you through tough times.
Facing financial difficulties
When cash flow is tight, you may not be able to pay your bills on time. If you manage the situation well, your creditors will have more trust and confidence in you than before. If you manage it badly, the situation can develop into a crisis.
Take action fast
If you are in financial difficulties or expect to be, get professional advice quickly. During tough times, your customers may not pay you on time, seriously disrupting your cash flow. Don’t let the problem go unresolved. Discuss solutions as soon as possible with your accountant.
Suppliers will appreciate you being upfront and contacting them early. Offering to pay an invoice over the next three months is better than saying nothing and hoping that the supplier won’t take any action.
Agree on extended credit terms with your suppliers. The further ahead you can plan this, the better:
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Reassure your suppliers that the problem is only temporary. For example, you might explain that you’ve taken on a large order that will affect your cash flow in four months time.
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Agree a plan and then stick to it. Don't be overly optimistic. It may be better to part-pay several creditors, rather than paying one and ignoring the rest. Aim to achieve some visible progress in the eyes of all your creditors. This will help you buy time to trade your way out of the difficulty.
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Keep your small business banker fully informed and investigate the possibility of taking out additional credit.
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If you receive any legal demands for payment, immediately ask your lawyer or accountant for advice.
Talk to your banker
If you are going through a cash flow crisis, you need your bank more than ever. This is where building a good banking relationship becomes important.
Proactively supply regular management accounts, including cash flow forecasts and a brief commentary explaining variances. Give advance warning of any cash shortfalls. The earlier your warning, the more support you’re likely to receive because advance warning demonstrates your control of working capital management. Provide evidence, such as a confirmed order, to show that the cash shortage is only temporary.
Next steps
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List your key suppliers and develop a communication plan – how often do you need to talk to them?
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Develop a range of communication tactics, such as emails, phone calls, visits, invites or newsletters, to keep suppliers informed of developments.
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Communicate with your business banker, particularly about your business plans and progress.
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Ask suppliers what else they can do for your business – they may suggest further opportunities.
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Add suppliers to your customer loyalty programs or reward schemes.
If you want to learn more about communicating with your customers, please feel free to contact us and let experts help to keep your business healthy.
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