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. If your business is struggling, then you can bet that your competitors are also. Your vendor will be well aware of this and will be worried about losing an account or two or more. So let’s use this to our advantage. If you are selling Zodiac rubber boats and you need to adjust your terms, you contact one of your key suppliers that provide the Zodiacs 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). What else can you renegotiate? How about 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.
For additional ideas or help with this process, please contact us at Elite Assist, LLC (erin@eliteassist.net)
