What is cash flow to you? Is it simply the influx of sales and the payment to suppliers, among other things?
We can think of cash flow as the heart of the business — it is literally what keeps the business running. It gives you profit, pays the bills, funds marketing campaigns — you name it, cash flow makes it possible.
Improving cash flow should always be a priority and one of the best ways to do so is to negotiate with your supplier and request for an increase in terms. We’ve listed down how you make this possible with a few simple tips:
How You Can Improve Your payment Terms
Tip 1. Develop a Stronger Business Relationship
How close are you with your supplier? Have you spoken with them in person at least once?
You may not realise it but building a stronger and better relationship with your supplier matters a whole lot when you want to improve payment terms.
Nowadays transactions happen online most of the time and a business relationship turns into a very impersonal and detached one. Emailing back and forth, communicating through chats — do these sound all too familiar? We’ve become accustomed to transacting over our laptops, tablets and phones, and we forget the benefits of in-person meetings and transactions.
There’s something more personal and fulfilling when business deals with someone you have a good relationship with becomes a success. In essence, these transactions are the work of two parties (yourself and the supplier) and as such, fostering a deeper relationship with them will be beneficial not just for you and your business but for them too.
Tip 2. Don’t Skip or Be Late on Payments
When your client doesn’t pay on time or skips payments totally, you know how annoying and time consuming it is to keep reminding them of their overdue invoices. The same can be said with your payment terms with your suppliers.
If you have signed a Terms and Conditions document, make sure that you follow through. This is crucial if you want to build trust and have intentions of increasing or improving your payment terms in the future.
Learn more about the importance of terms and conditions for your business here.
Tip 3. Highlight How Beneficial It Will Be For Them
Business deals are always a two-way street. While having an increase in payment terms will be beneficial for your business, explain how it will also reflect on your supplier as well.
When you have plans of expanding your product line, your service offering or even the business itself, highlight how your latest offerings would need more flexible payment terms but would have higher returns. Better sales for you also means better sales for your supplier.
It is best to negotiate in person so you can explain properly how an increase in payment terms will potentially affect everyone’s profits. If possible, make a presentation of sales projection when new products hit the market. Letting your supplier know of the product’s potential growth will convince them even more to negotiate current terms.
Tip 4. Shop Around
There are other suppliers out there that could give you better terms. Ask around and see what their offers are. If your supplier rejects your request to change your current terms, use this to negotiate. If you’ve been a good loyal customer they will be likely to negotiate with you rather than lose you to someone else.
Tip 5. Lower Your Expectations
Lofty expectations can hinder or hamper your negotiating power so it is best to go back to the drawing board and see where your business stands at the moment. Look at current sales, costs, and what your averages are so you can request for a change of terms that is both doable on your and your supplier’s end. Don’t make a request that is simply way too out of reach, even if your intentions are good and you believe in your business.
Tip 6. Head straight to the boss
Are you negotiating with an agent? Find out who makes the final call and talk to them directly.
Do your research and find out more about them. See what makes them make or break a deal and plan accordingly. Be prepared to answer any objections they may have with your proposal and always have a back-up plan when things go awry. When you have big plans for your venture, it is always a good idea to strike a deal with someone who understands the nitty gritty of running a business rather than a middle man like an agent.
Better Terms, More Profits
Improving your cash flow and growing your business is a priority for many small businesses. It’s important to understand how you can work with your suppliers to improve your payment terms. Hopefully, these tips will help you gain what you want for the growth of your business.
Remember to always do your research, and set realistic expectations. And don’t be afraid to try out other suppliers if your request is constantly being rejected.