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To Build Vendor Relationships, To be a better seller, it helps to be a better buyer. Developing strong relationships with your suppliers can give you an edge that can be passed along to your customers in the form of higher quality, competitive pricing, faster turnaround or greater industry knowledge. Yet if yours is like many new businesses, you are probably neglecting these crucial interactions in your eagerness to focus on building your own client relationships. The result? You may be paying too much, paying too soon, or incurring more interest than you need to. In some cases, you may find yourself crunched for cash and paying late fees, damaging your credit and jeopardizing the very relationships you should be nurturing. To build effective vendor relationships, start from a position of strength by demonstrating two things: your creditworthiness and your knowledge of the standard payment options for their industry. Of course, if your business is new, both of these criteria may be a challenge for you. Some pointers: Build your documentation. Your business plan, pro forma and personal financial statement can be used to demonstrate your creditworthiness. For a start-up in the very initial stages, a letter of credit from a major customer can be used as security for buying supplies or equipment to fill the customer's order. Involve your banker from the outset. You are fortunate if you have an established relationship with a bank, either through your personal banking or through a previous business banking history. If not, make a point of choosing a bank where you feel comfortable with your banker, and educating him or her on your credentials, plans and prospects. This is usually not one meeting, but a series of conversations. Once that relationship is in place, your banker can become an ally. We often are asked to talk to vendors as part of a credit check in establishing new supplier accounts. Research potential vendors. If you are a member of a trade or professional association, use your connections to check out not just the quality and reputation of various suppliers, but the standard payment terms. You can't ask your competitors, but you can find non-competing businesses that use the same or similar suppliers, perhaps in other geographic markets. Do most vendors offer trade credit accounts or discounts for early payment? Can you return unused or unsold items? Are up-front deposits standard, and what is the usual deposit percentage? Look for alliances. In some cases, your trade group or another association can get you discounts or preferred terms with certain vendors serving your industry. Depending on your business, you may find that joining a warehouse club can cut your costs. Or maybe you can pool your order with another buyer to gain a volume discount. Some credit cards offer business discounts as part of their benefits as well. Prioritize your needs. What is most important to you: speed of delivery? Quality of the product or service? Price? Knowing your priorities will help you negotiate with the vendor. You can reduce your costs by arranging ground delivery instead of air freight, or accept a slightly different item that is a stock product to avoid custom ordering. Your flexibility may also encourage the vendor to be flexible in turn. If you have the ability to pay up front, ask for a discount for cash or for paying early. Pay your bills on time. If you are in the early stages of your business, establishing a solid credit history is essential. Every late payment affects your credibility. Not only does it impact your formal credit history, but it also can affect the word-of-mouth reputation of your business. Your vendors have trade groups and professional associations, too, and if word gets out that you are a "slow payer," you may find vendors asking for more up-front cash. Establish a line of credit. In the early stages of your business, or in a growth spurt, you may find yourself in a cash crunch. A line of credit at your bank can give you the flexibility to manage through cash flow issues and still maintain a solid payment history with your vendors. This approach is especially appropriate if your cash flow needs are $50,000 or higher. Typically, the terms on a line of credit are more attractive than the terms on a vendor's credit agreement or even on a credit card. Take the time to do your homework. Many new business owners are moving so fast they are mentally out of breath. They take the first option available – the first vendor, the first terms offered, the first available product. Don't be in a rush. Make sure you understand your choices and have probed for more than the original offer. "Is that the best deal you have?" is always a smart question. Steve Dufilho is chairman and CEO of Compass Bank San Antonio. He can be reached at steve.dufilho@compassbank.com or 210-370-6103 Opinions expressed are those of the author(s) and do not necessarily represent the opinions of Compass Bank. November 2007 |
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