7 Tips for Working Out Improved Payment Terms with Suppliers
If you’re thinking of ways to gain access to more cash for debt management or to improve business operations, then one of your best bets is to discuss your payment terms with suppliers and vendors you currently do business with.
Work on a strategy for your discussion with your supplier about increasing the length of your payment terms, and use these 7 tips to increase your chances of the discussion going the way you would like it to.
1. Communication Goes a Long Way
How good is your relationship with your current vendor or supplier? A good client-supplier relationship improves the chances for your payment term request to be approved. If you’re not already doing so, use relationship-building actions like responding to phone calls and email requests from them. Investing in the relationship with your supplier now can pay off huge when it comes to making vendor payments term lengthening requests.
- Know Their Industry and Language
Knowing what you’re talking about and what the supplier is talking about is a huge benefit when negotiating payment term requests. Armed with industry knowledge, you’ll be able to persuasively demonstrate why your request will be the best thing for their business as well as for your own.
3. Create a Win-Win Proposition
It’s a good idea to determine how your profiting from this plan can improve your business relationship with your supplier. If you can free up cash by lengthening your payment terms with your supplier, can you increase your orders or the variety of orders for that supplier in return? Can you afford higher classes of items that the supplier provides, or determine a way to advertise for them at no cost to them? Look for ways to clearly benefit both sides of the payment term lengthening request.
4. Keep Backup Suppliers In Mind
Not all suppliers will go for your payment term request. You should contact backup suppliers in advance, and use their approval terms as bargaining chips with your favored supplier. Once your favored supplier knows that you’re ready to move to another supplier who will meet your conditions, then they may be more inclined to approve your request to keep your business.
Don’t lie about the reason(s) why you’re requesting a longer payment term. If you’re really just in a bind cash-wise, then just explain this to your supplier. They will likely relate to you, and work with you to maintain a positive business relationship with you. They don’t want you to go out of business as that means that they will lose a valuable customer as well.
6. Reasonable Terms
When negotiating payment terms, consider a time-frame that sounds reasonable for the vendor to expect payment. If you currently have a net-30, then discuss going to net-45 or possibly net-60. Keep in mind your typical order volume with that supplier, and your average when compared to the supplier’s other customers. Do some research about the industry average for payment lengthening terms.
7. Talk to a Decision Maker
Ensure that you’re discussing these payment term requests with someone who has the authority and the responsibility to make a business decision about this sort of issue. Likely, this won’t be a salesperson, but could be someone like a regional sales manager or possibly someone in the C-Suite, such as a CFO or COO. You want someone who knows the company’s cash position and can properly negotiate the request with you.