Contract negotiation

Small businesses can improve cash flow by negotiating more favorable terms with their suppliers. But it has to be a win-win.

Congrats! Your business just had one of its best quarters for revenue ever. But after you’re done paying all your suppliers, the success brings you back down to earth. If you’d like to improve your cash flow, consider negotiating the terms from your suppliers.

Why would one of your suppliers want to charge you less or increase your payment terms from net 30 to net 60?

If you do one or more of the following, your supplier will be way more likely to accept different terms:

  • Refer friends and other business owners to your supplier(s)
  • Discuss the possibility of increasing your orders from the supplier
  • Thank your supplier on social media
  • Develop close relationships with the supplier
  • Be honest

Build Supplier Relationships By Promoting Them

Suppose you’re a restaurant owner…. Is it really necessary to forge a close relationship to the company who supplies your eatery with napkins and kitchen utensils?

Well, no, it’s not necessary. But imagine if you were to post an occasional mention of how much you appreciate the supplier’s business and professionalism on social media. You can mention (if it’s indeed true) in the post how your supplier has never been late with a delivery and that you appreciate their competitive pricing.

Take it a step further and post a picture of a smiling employee who works at your supplier. (“Tony always makes sure our restaurant is prepared with the best materials in the industry. Thanks Tony & Acme Restaurant Supply Company.)

It should go without saying that just posting once on your social media and then shortly thereafter contacting the supplier to negotiate terms will seem disingenuous; your ruse will be obviously transparent.

The longer your relationship is established with a particular supplier, the more likely they will be to accept changing the terms. Is revenue declining? Be brutally honest and tell your supplier. Most small businesses of all stripes can relate.

Approach The Right Person

However, if you’re going to negotiate, make sure you discuss terms with the appropriate person. If, for instance, you own a coffee shop and you’d like to change either the cost or net from the coffee bean supplier, don’t ask the delivery person. Instead, schedule a face to face meeting with the supplier owner or CFO.

Anticipate Cash Flow Shortfalls

Perhaps no two calendar sales years are ever alike in your business. But if you have a best in class point of sale (POS) system, you’ll be able to better analyze sales reports and anticipate cash flow problems. Let’s say for example you own an artisanal ice cream brick and mortar and you know that in the winter, sales usually decline by 25%. If you show sales receipts to your supplier and can prove that summer sales are spectacular, perhaps they will be more inclined to extend payment terms to net 60 during sluggish sales months. To sweeten the deal, offer a cherry on top: a 20% discount on ice cream for the supplier’s employees.