F&B Business: How to Negotiate Payment Terms With Your Supplier?
Every business needs to have a good cash flow but how does one ensure that this will always be the case?
To start off, specifically within the supply chain industry, it is said that one of the most effective ways to improve your cash flow is to opt for longer payment terms with your suppliers.
Basically, by adding time into your pay schedule, it is the equivalent of you getting a short-term loan.
You get to keep your in-house cash while you continue to collect revenue. This gives you the ability to put your cash to use in ways that can healthily add to your bottom line.
However, if you’ve never asked your suppliers for better payment terms, you may feel that it’s unlikely to be successful.
Worry not, this is simply not the case, especially, if you have already established good relationships with your suppliers. They value your business, which means that they’re likely to at least consider your request.
Before you approach a supplier about extending your payment terms, sit down, and formulate a plan. You may only get one shot at this, so it’s important to be thoughtful about your strategy.
Here are a few tips to keep in mind:
1. Good Communication is Key
You need to ask first, how is your relationship with your supplier? Do you communicate daily? Do you have an open line of negotiation?
It is said that the better the relationship, the bigger the chance of any client’s request to be considered.
Hence, starting today, start building better relationships with all your suppliers. Answer their calls. Make sure to reply their emails.
Make sure to set up a meeting or a conference call to learn more about their businesses and how you can work together to make the business dynamic more profitable if needed.
Remember, the best time to negotiate better terms is when you don’t have an urgent need for them. Start investing in the process today.
2. Speak the Business Language
It helps if you can have an informed and intelligent conversation with your suppliers about your proposal. If you understand their business, you’ll be in a better position to explain why the proposal is good for them.
Remember, communication is always the key! When you are discussing about your payment terms, do share to your suppliers on how far your business has come, along with your progress to date.
The reason behind this is fairly simple, where you aim to set a positive tone when communicating with your suppliers.
This is so that they will establish a desire to work with you continuously in the future, instead of focusing only on getting the payment on time, but jeopardizing the mutual partnership that they already have with you in the long run.
3. Mutually Beneficial Proposition
If you have a great relationship with all your suppliers, they may be willing to do you a favor because of the established mutual understanding and trust.
However, they’re much more likely to bargain if they’re looking to get something back in return. Think about what you could offer in exchange for a longer payment term.
Ask yourself, will the payment term extension request allow you to grow your sales, thereby, increasing your order volume from the supplier? Will you use that cash to pay down debt, increase margins, and/or start looking into high-priced products?
Frame your proposal in a way that makes sense for both sides.
4. Always Have A Plan B to Z Ready
Of course, there’s always a chance that your supplier won’t consider your proposal. Think about this outcome in advance and how you might respond to it.
If longer payment terms are critical to your business plans, then, you may need to have backup plans such as having a new list of suppliers lined up.
Try to contact those backup suppliers in advance and see if you can get favorable payment terms from them. Then, you can use that information as a negotiation point.
If you mention that a competing supplier has agreed to meet your terms, your current supplier may be more willing to consider your proposal.
5. Honesty is the Best Policy
Truth be told, this goes back to our earlier point about having good relationships with your suppliers. If they’re truly a trusted partner for your F&B business, there’s no point in lying about the reason why you want to extend payment terms.
If you need better terms because you’re in a cash crunch, simply let them know. They’ve likely been in that exact same position before and they woul know what it feels like.
What’s more, if they value your business, they would want you to be successful. The last thing they want is for you to go out of business because that means they’ll lose a customer.
Dropee’s SME Business Financing
Malaysia-based B2B eCommerce marketplace, Dropee, recently introduced SME Business Financing that provides financing support up to RM200,000 to all Dropee’s retailers.
Retailers can utilize this SME business financing to procure products directly from suppliers within the platform; with a financing tenure of up to 12 months. The partnership is based on a mission shared by both partners — to help merchants and retailers grow their businesses.
Dropee currently specializes in the Food & Beverage product category, fast-moving consumer goods (FMCG) and other retail market segments.