If you're on good terms with your suppliers, you have a better chance of getting special deals or preferential treatment. They might also be kinder to you if you ever face a cash shortage and need some time to pay your accounts.

Build the relationship

An efficient payment policy is a vital part of building a strong and trust-based relationship with your suppliers and other creditors. If you assign responsibility for bill payment to an employee, ensure the employee follows your payment policy. Unnecessarily delayed payments could undermine the goodwill you’re trying to establish with your suppliers. Strengthen your relationship with suppliers further by inviting them to events, sending them thank you cards or emails and visiting their premises.

Take advantage of discounts

Find out what discounts each supplier offers for early or prompt payment. You may be eligible for a cash payment discount or for paying within 30 days. If there’s no discount on offer, then try asking for one. Even if you’re not successful, it reinforces the fact that you are a reliable and prompt payer and deserve some recognition for this – preferably a discount! If you sell your products on a cash basis, like most retailers tend to do, you can afford to pay quickly in return for settlement discounts. Alternatively, pay the invoice using your credit card and earn yourself some loyalty rewards.

Be flexible

Some suppliers operate on a cash upfront basis or require a deposit. Once you have a solid history with them, they might offer credit terms. Be prepared to trade credit terms that suppliers offer you for other concessions, such as lower prices. When you negotiate, explain the benefits you can offer your suppliers so they support you in the future. For instance, if you have a record of prompt payments, your suppliers should expect to do you a favour in return when you need one. If you want to negotiate extra credit, tell the suppliers what they will get in return, such as steady orders or a commitment not to look for alternative suppliers.

Review your terms

Asking for extra credit from a supplier is fine, and most suppliers will support you. Regularly review the terms each supplier provides and check whether other suppliers can offer you better terms. If so, ask your existing supplier to consider matching the offer or improving their terms. It’s acceptable to ask for benefits in return for giving suppliers what they want. For example, you might negotiate to receive an enhanced service in return for committing to placing regular orders or paying on shorter terms.

Recognise other suppliers

Broaden your view to include all creditors vital to the survival and growth of your business and then develop tactics to win the support of each one. Make sure you are aware of what could happen if you were unable to make a payment on time. For example, at what point would a leasing or hire purchase company repossess the equipment?

Prioritise your suppliers

Decide which suppliers are critical and no alternative supplier is immediately available. For example, your landlord may have the power to evict you for non-payment. IT suppliers who regularly maintain your IT systems are often high on the list, as trying out a new supplier can be a risk in itself. However, suppliers of commodity items that you can buy elsewhere are usually bottom of the list. Identify which creditors are likely to be inflexible and could seriously damage your business as a result and then plan to get closer to them. Building a relationship can be harder in large and impersonal businesses. If you hold back payment because of a dispute, you may be penalised immediately. You may have to pay up first and argue your case afterwards. Always keep a record of who you have spoken to and what was discussed.

Communicate with suppliers

Will your supplier go the extra mile for you when you need a rushed delivery or extended credit? Building a good relationship can make all the difference. Involve suppliers in your business so that they understand your needs. Suppliers are often good at coming up with ideas on how to improve your product or your business as a whole, as they supply other businesses like yours. Keep communication channels open to avoid small problems becoming large ones and address issues as soon as they occur. Keep informed about developments at your suppliers. For example, a change of ownership can mean a drastic reduction in the credit a new owner is prepared to extend to you. If you have a good relationship with sales reps, chances are you’ll get advance notice on special deals, sneak previews of new products or the opportunity to buy discontinued lines before your competitors. They may also be prepared to take back some excess stock to help you through tough times.

Facing financial difficulties

When your cash flow is tight, you may not be able to pay your bills on time. If you manage the situation well, your creditors will have more trust and confidence in you than before. If you manage it badly, the situation can develop into a crisis.

Take action fast

If you are in financial difficulties, or expect to be, talk to your NAB Small Business Banker or accountant and get professional advice quickly. During tough times, your cash flow may be seriously affected by customers not paying you, or by taking much longer than anticipated to pay you. Don’t let the problem go unresolved. Discuss solutions as soon as possible with your accountant. Suppliers will appreciate you being up front and contacting them early. Offering to pay an invoice over the next three months is better than saying nothing and hoping that the supplier won’t take any action. Agree on extended credit terms with your suppliers. The further ahead you can plan this, the better:

  • Reassure your suppliers that the problem is only temporary. For example, you might explain that you are taking on a large order that will cause a hole in your cash flow in four months time. Or you might be recruiting and training a new sales person, which will reduce sales in the short-term, but boost sales thereafter.
  • Agree a plan and then stick to it. Don't be overly optimistic. It may be better to part-pay several creditors, rather than paying one and ignoring the rest. Aim to achieve some visible progress in the eyes of all your creditors. This will help you buy time to trade your way out of the difficulty.
  • Keep your NAB Small Business Banker fully informed and investigate the possibility of taking out additional credit.
  • If you receive any legal demands for payment, immediately ask your lawyer or accountant for advice.

Talk to your bank

If you are going through a cash flow crisis, you need your bank more than ever. This is where building a good relationship with your NAB Small Business Banker becomes important. Supply regular management accounts, including cash flow forecasts and a brief commentary explaining variances. Be proactive, rather than waiting to be asked for the information. Give advance warning of any cash shortfalls. The earlier your warning, the more support you are likely to receive in return because advance warning demonstrates your control of working capital management. Provide evidence to show that the cash shortage is only temporary. Third party evidence, such as a confirmed order, can be useful.

Next steps

  • Develop a range of communication tactics such as emails, phone calls, visits, invites or newsletters that keep them in touch with developments.
  • Ask suppliers what else they can do for your business – they may suggest further opportunities.
  • Add suppliers to your customer loyalty programmes or reward schemes.

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