Every small business has vendors and suppliers they work with to provide them with products and services. Negotiating terms is a critical component to ensure they are getting the best payment terms for what they are buying. How are you negotiating terms with your vendors and suppliers?
Negotiating the right deal with your suppliers doesn’t mean getting what you want at the cheapest possible price. There are many other criteria beyond price that should be considered when negotiating terms with your suppliers.
Increasing the number of days you have to pay for the product or service you bought could have a big impact on improving your working capital. For example, if you currently have 30-day terms and can extend this time to 45 or 60 days, you’ll have more time to pay the bill and create a positive impact to your cash flow.
Getting a discount on your purchases is also a point of negotiation for supplier terms. Suppliers will typically offer a percentage discount, like taking a 1% discount off your invoice, if you pay them quicker. This could help you reduce your costs of goods sold, which translates to more profit for your business.
Renegotiating your supplier terms, especially with those that you are doing more business with, may help you on both payment timing and discounts. Creating a win/win scenario where your supplier is getting paid quicker and you are getting a bigger discount is one example of how this might work.
Negotiating terms with your suppliers should be an ongoing process in any small business as there is a direct correlation to improving working capital, cash flow and profits.