There are benefits to be gained from making improvements to the payment terms that your business has in place with its suppliers. Regularly seeking to make these improvements will ensure that the terms suit the needs of your business.
Needs such as extended invoice periods or split payments may serve your business well and if you can reach an agreement with your suppliers, you would effectively be building customer relationship too. Basically, you need to stay on top of situational changes and try to get the best deals for your business.
Debt can be fatal in running a business, so it is crucial that you master your cash flow. You may not always be able to control the time that your customers pay, but you can keep yourself in the green zone by negotiating favorable terms with your suppliers. Here are a few tips to help you approach this:
Sustain a good relationship
Constant communication is crucial. For instance, emails are an effective means of communication but for the sake of a closer relationship with your suppliers, phone them instead sometimes. It would be easier to convince a supplier about new terms if you have a good relationship with them, up to the point where they actually care about how your business grows.
Keep your suppliers happy by making payments as and when due. An effective way to do this is to assign a specific time for paying off all your invoices, banishing the likelihood of inadvertent late payments. This will keep you in the supplier’s good books and make them more receptive to payment terms negotiations.
Arrange favorable terms
You should constantly be on the lookout for the payment terms that will serve your business best. Take a look at the terms of your suppliers and see if you can get discounts or lower prices on them. You can also negotiate the period of payment. Say, if you were paying every 30 days, you could negotiate for an increase to 45 days to give yourself more breathing space between payments. However, you should take note that the supplier has to feel like there is some sort of advantage for them in the deal too; otherwise, there may be no reason to accept the new terms that you’re offering.
This ties in with looking for the best deals. Healthy competition is always great, so you can look for quotes from competitors based on the products or services provided. Use this information to get better deals for yourself and present them to your suppliers during negotiations.
If you think there’s a chance that you will be late on a payment, don’t wait until it’s time for payment before informing the supplier. Call them or meet with them face to face and inform them of the situation. However, make sure that this is a one-off thing – avoid a repetition of the situation in the future.
By implementing or following these key areas of your business operations should help you improve your cash flow and build stronger and lasting relationships with your suppliers. With many businesses already following such tips to try and improve payment terms, you may want to look at your accounts receivable to see if you can optimise and improve efficiencies here – as this also has a direct impact on a businesses cash flow position.
About the Author
James Spencer is a leading debt collectors sydney specialist. With over 15 years experience working as a thought leader across a number of industries like consultancy and accounts receivable management, he has built a reputation as a pioneer in providing practical knowledge and guidance for both SMEs and large enterprises across the world. With a strong following in the finance industry, James often attends conferences to key note on operations management and debt recovery management to help executives optimise their process and reduce operational deficiencies.