How To Estabish Payment Terms With Your Suppliers

settling terms of payment

How To Pay Suppliers, Establish Credit, Deal with Future Delivery Problems

In most of the relationship between suppliers and the business they supply to work on some sort of credit basis.

A supplier who has been supplying merchandise for business on a regular basis, expects to give a time period of credit for about 30 to 60 days and expects payment sometime within this period.

A business might find it particularly convenient to have some sort of a line of credit with the suppliers. However, as a new business, do not be surprised if your supplier is not ready to extend credit.

As a startup business, you would probably not have any credit rating with your bank as well since the account will only be recently opened and will not have a credit history.

One way you can counter this lack of history is by approaching a supplier that is relatively smaller. You may have more weightage and be able to convince the supplier more about your credibility them by approaching a large supplier. A personal visit yourself will work in your favor as well. Present your financial statements and the description of your prospects for success in your new business. Do not even consider inflating your financial statements to compensate for the lack of references. Not only is this a felony that it is also easily caught by most credit managers

However, do not be surprised if your supplier puts you on the cash on delivery basis for the first few months.

This helps the supplier get to know you better and establish your credibility as an honest business and a regular paymaster. It will also put the supplier on a safe footing in case your business has been based on unfounded prospects and projections.

Once the supplier is sure that your business is doing well and that you’re ordering merchandise on a regular basis, he would be more agreeable on issuing you a line of credit.

This creates a valid credit reference that you can present to new suppliers until the credit agencies accumulate enough data on your business for it to have its own credit history. Most suppliers operate on trade credit basis with businesses which means that once you are billed for a product or service you are given a certain grace period before the payment is due which is typically 30 to 60 days. During this time the supplier does not charge interest. Carefully consider all discounts and allowances before deciding whether to buy an item. Take into account what the financial cost of any item will be and what profit margin you can expect to make on the item.

dealing with business supliers

The most common of discounts are given for prompt payment and for payment in cash. Whenever you are able and whenever it is important, make sure you specify how the goods are to be shipped. You can even control the method of shipping to reduce your overhead costs by choosing the least expensive shipping method.

Suppliers also sometimes offer discounts to businesses for buying in quantity as freight allowance for a specific amount of merchandise purchase. Some suppliers pay an increasing percentage of the freight bill as the size of the businesses orders increase. Some may cover the entire shipping cost for purchase over the minimum amount.

Free shipping has become a sought after incentive for both businesses and retailers. You’ll find many online stores offering free shipping on a certain amount of order. Be aware of the fact that your shipping freight can equal more than 10% of your merchandise if the supplier happens to be located quite far from the business.

Make sure that you find out the suppliers freight policy as well as his charges before. Make sure that the order is large enough to warrant the delivery charge. Once you have established a sales pattern and know how much inventory you require, try to order in bulk, reduce the number of orders you have to place and save on the freight charges.

If the manufacturer or the supplier does not take back orders you might consider cancelling a backorder and adding it to the next village. One good source for finding suppliers is, This is a comprehensive online directory that lists manufacturers by categories it and geographic area.

Get to know how your supplier works and how they deal with orders. Do they use any particular system such as first in first out or we give priority to larger orders while customers with smaller orders have to wait.

Also, do they have other important clients that get a higher priority than you and how will the suppliers handle a shortage. Will your business have to wait till orders for its more important clients are fulfilled. Many businesses also specify a cancellation date of the orders which means they if the goods get delayed in shipping, goods shipped after a particular date will be returned to the supplier. By specifying a cutoff date you can increase the chances that your orders are shipped promptly and arrive in time.

When the shipment arrives at a business location, make sure there is someone there to check the basics such as the correct amount and type of merchandise received. Make sure that you have an understanding with the supplier that you would take the next couple of days to check the merchandise more thoroughly and to ensure that the quality matches the sample and that’s the supplier will address any issues that crop up during this examination.

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