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, www.thomasnet.com. 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.

How To Find And Deal With Business Suppliers

dealing with business suppliers

Finding Suppliers For A Business

Retail businesses depend upon suppliers. Depending upon the scale of your business and your inventory selection, you may make do with just a few or need many dozens of suppliers and vendors. If your business has been running for some time and is a popular one, you will get leads from sales representatives of various suppliers. However, if you’re just starting out, you will need to make effort to locate them yourself at trade shows, wholesale showrooms and conventions, through buyers directories, industry contacts, the business-to-business Yellow Pages and trade journals and websites.

Supplier can be divided into four general categories.

Manufacturers

Buying directly from manufacturers is usually cheapest. Most retailers try to buy from independent representatives or companies salespeople who handle the merchandise from different manufacturers. The only reason why buying from a manufactured may be cost prohibitive is if the location of the manufacture makes shipping freight expensive.

Distributors

Distributors are also known as wholesalers, brokers or jobbers who buy in quantity from several manufacturers and store the goods for sale to retailers in their own warehouses. Although all the wholesalers will include their profit margin before selling the merchandise you, the advantage of buying from a wholesaler can be that they have a variety of merchandise available in one place from many different manufacturers.

They may be able to fulfill their business needs in case you do not wish to place a very large orders. Some manufacturers refuse to fill small orders because they don’t consider it worth their time and effort. Also, if the wholesaler happens to be closer by than the manufacturer, the amount of money that is saved and quicker delivery times can often compensate for higher product costs.

Independent Craft People

Many independent craftspeople sell and supply their own goods either through representatives or trade shows.

Import Sources

There are some people who operate like wholesalers but instead of picking up merchandise from local and national manufacturers, they import and buy foreign goods. You can use these domestic importers who operate much like a domestic wholesalers to purchase merchandise for your business. You may even consider traveling traveling overseas yourself once you get familiar enough with the product and are is comfortable with making such business trips. Once again, approaching foreign manufacturers and suppliers yourself instead of through an importer will help you save money on the cost per item.

How To Deal With Business Suppliers

Building a relationship with your suppliers can be a key factor in the success of your business. Reliability is one of the chief factors that a business looks at when finding a supplier.

Having a long-term, financially sound relationship with a supplier means that they can help you out during the times when business goes through a rough patch itself.

When you are initially trying to build a relationship with the supplier, remember that you need to be professional and reasonable in your dealings with them.

If you argue and harangue them over every amount, every bill and ask them to shave the prices of everything that they sell you, fail to pay the bills promptly, don’t be surprise if that relationship ends quickly. After all, suppliers are also in business to make money.

If you’re a business start up, you cannot expect to get the same kind of attention and priority as other long standing businesses who have been regular clients of the supplier.

The intention should be to build your credibility and develop a good working relationship that shows your reliability on a long-term basis. Once you have built your own importance and priority with a good supplier, you will be happy to learn that it is one of the relationships that will prove to be profitable for both you and your suppliers.

Once you have compiled a list of possible suppliers, you should ask for quotes, proposals, complete with prices, available discounts, delivery terms and other important factors.

Do not just consider the terms but also investigate the supplier’s financial condition and reputation as well.

Ask them for references of their existing customers and call these customers to find out how well the supplier has performed. Every kind of business process and relationship has some problems at one point of time of year.

The important factor is how these problems have been resolved. This is true for relationship between the supplier and business as well. When you ask existing customers about the supplier, try to learn how the supplier handled problems and how helpful and co-operative he was in resolving the problem.

The attitude that you take with your supplier is likely to be returned in kind. Be honest, courteous and firm with your suppliers.

Give them a clear picture of what you need and when you need it. Have a good understanding of the total cost and make sure you clarified all important factors such as time of delivery clearly to the supplier. Keep in constant communication with your suppliers to fend off possible delays, potential substitution for materials, product quality, for improvements or new product introductions and potential savings.

Be prepared for certain conditions that many suppliers lay down specially for startup businesses and for new business relationship.

Suppliers can often establish a minimum order for merchandise which may be higher for the first orders to cover the cost of setting up a new store account. Some suppliers may also demand a minimum number of items per order.