contact: info@hpg.com
July 2010
How to work with vendors when cash is tight
For many small businesses, maintaining adequate cash flow can seem almost impossible. Customers are tightening their belts, lending institutions are rethinking their credit terms, and suppliers are struggling to maintain their own vendor relationships. In today's economy, many business owners have seen their personal net worth plummet and some are facing bankruptcy.
All this makes today an excellent time to renegotiate with your vendors. Because most businesses are facing similar struggles, you may find a sympathetic ear. Let's say you're in the business of outfitting Scottish pipe bands with drums and spats and kilts. One of your key suppliers provides kilts on terms of 2/15 net-30. (To get a 2% discount, you must pay the supplier's invoice within 15 days; the entire payment is due in 30 days.) To bolster your cash flow, you renegotiate the payment terms to net-45 days. By retaining your money for another 15 days, you ease the strain on your bank account (especially helpful if payment cycles from your major suppliers tend to be aligned). With that victory under your belt, you renegotiate the lease terms for your office space. Instead of paying a month in advance, you ask the landlord to let you pay at the end of the month. You keep that cash in your pocket for another 30 days or so.
Of course, negotiation involves give and take. For example, you might offer a larger share of your business to a vendor or even agree to a small price increase in exchange for modified payment terms. Needless to say, you'll want to think through any potential changes before you begin negotiations. To keep suppliers for the long term, it's vital to make promises you can honor.
When negotiating credit terms with vendors, take time to identify the decision maker who can make the change happen. In some cases, a face-to-face meeting with this person will determine whether you succeed or fail. Don't just e-mail the company secretary with your request. Nothing trumps a phone call or personal meeting, especially when trying to revise credit terms.
Finally, if you can't make a scheduled payment, don't wait for your supplier to call. Be proactive. Most vendors are willing to work with customers who make an honest effort to correct cash flow problems before they spiral out of control.
If you'd like more suggestions for working with vendors, give us a call.
