Price is important when negotiating with suppliers. Typically both higher volumes and prompt payment will attract a lower price. However price isn’t everything and there are many other variables that that BIG Businesses negotiate to minimise the impact on their cashflow.
Payment terms – this is the time in which your suppliers expect to be paid. If you don’t ask for longer terms then you’re likely to be put on COD (Cash on Delivery) or 7 days. This will obviously require you to manage your cashflow much more aggressively. The best situation is where you can arrange terms that coincide with the time it takes your Customers to pay you.
The standard terms for different industries will vary. Anything to do with perishable food or providing labour will require prompt payment. If you purchase large specialised or high value items that are not on sold quickly then you are in a stronger position to negotiate longer payment terms with your supplier.
Credit limits – there is no point negotiating longer payment terms if your supplier is unable or unwilling to extend an appropriate credit limit to your business. Supplier credit is one of the few forms of credit that is still free, or at least built into the upfront cost without requiring additional interest payments. Supplier credit is a great way of making your limited cash work harder for you.
Delivery lead times – longer lead times mean you have to carry more inventory in your business which ties up more cash. If you don’t have a great deal of money to hold lots of inventory then the faster your supplier can ship an order to your business the better. Direct or drop shipments straight to your Customers are ideal.
An alternative to faster lead times would be to negotiate purchases on consignment. This is where your supplier keeps their inventory in your shop or showroom and you only pay for it once it has been sold to your Customer. The same can be negotiated by manufacturing or printing businesses for the raw materials they use.
If consignment is not an option ask your supplier for samples to display to your Customers. This combined with rapid supplier lead times will allow you to keep as little cash tied up in inventory as possible.
Minimum orders – if your supplier has longer lead times or you don’t have the cash to hold large amounts of inventory then many small regular orders will allow you to more effectively manage your cashflow. It’s important when negotiating the minimum order quantity or value with your supplier to consider any additional freight costs at the same time.
Packaging & handling – if you can purchase inventory that requires the least amount of double handing by your staff before presenting it to your Customers for sale then you can minimise the labour costs and cash impact of doing it yourself. Buying in bulk often means having to break down orders and repackage it into smaller quantities. Your suppliers may have the equipment to automate this process for you.
For retailers there are many suppliers who have developed stands and displays that come premade or can be readily assembled with their products already in them. Be sure to ask and take advantage of these offers.
Match warranty and repair conditions – if the items you sell carry a warranty or you offer a repair service negotiate equal warranty and repair conditions with your supplier. This will mean that you can pass on any returns from your Customers back to the Supplier immediately and not be left out of pocket for defective or damaged goods that unnecessarily tie up your cash.
There are nine other levers available to inject cash into your business if required. You should have at least 3 preferred options that can be readily deployed if something happens unexpectedly. Read about our other tips at How does BIG Business improve Cashflow.