Negotiating with Suppliers


Cash is king whether the economy is good or bad, and if your company is experiencing a money crunch, it may be time to renegotiate payment terms with your suppliers and vendors.

“Many small businesses are suffering tremendous profitability and cash flow pressures because of the economy,” says Mark Allio, regional director of the Massachusetts Small Business Development Center (SBDC) and Minority Business Center in Boston.  Because of these concerns, it can be in the best interest of everyone–businesses and their suppliers–to try to re-work financial deals, he says.  The benefit for the vendor is that they can keep a viable business client, one that’s likely to reward them with business loyalty.

Here are five suggestions for approaching suppliers to renegotiate payment terms:

Take a financial inventory first. “Many cost-saving and cash-saving opportunities are right under your nose.  There’s a lot that can be done in house,” says Allio.  For example, some suppliers may already have provisions in place to extend payment terms with little penalty.  Another tip is to see if your company is paying extra for services you don’t need, and could easily eliminate.

“If you don’t understand your financial numbers, invest some time educating yourself about how they’re structured,” says Allio.  Your accountant, bookkeeper, or other trusted business advisor could be a good source for this information.

Deborah Curate, a certified bookkeeper in Chestnut Ridge, New York, says the key to knowing your financial outlook is to keep consistent records.  “I recommend reconciling your bank account on a monthly basis, and your balance sheets on a weekly basis,” she says.  “That way, you know what’s coming up, and can plan, forecast and do your budget.”

Proactively contact your suppliers. Once you’ve determined that there is a cash flow problem, and you’ve done everything you can internally, be sure to tell your creditors about the situation, says Lucy Holifield, director of the Office of Minority Business Development at the University of Georgia SBDC in Athens, Georgia.  “You have to communicate with your supplier.  This is an important step to take even if your payment isn’t late yet,” she says.

First, contact key vendors. “Call them and explain the truth,” says Allio.  Perhaps you lost some business, or your customers aren’t paying as fast as they should, meaning it’s going to be difficult for you to make payment with the terms you agreed upon.

“Many business owners are reluctant to share bad information with their vendors, but if they’re upfront and honest with the problem, it could help preserve and even solidify the relationship with that vendor,” says Allio.

Know what you’re asking. “Understand your cash flow forecast before setting up a payment plan with anyone,” says Holifield.  Then, you can know exactly what you need to ask for. It could be to extend an invoice so that it’s due in 45 days instead of 30, to accept a partial payment, or agree to another mutually beneficial solution.

Get it in writing. “When you speak to someone in your supplier’s accounts receivable department, and you’ve made a verbal compromise, ask them to send you a letter verifying everything you’ve discussed,” says Courtney Davis, assistant CEO of Davis Professional Accounting in Memphis, Tennessee. “That way, if they still send your account to collections, you’ll have proof that you renegotiated the agreement.”  Davis adds that if the supplier doesn’t send you a letter in an acceptable amount of time–say, within a few days–contact them again.

Find business help.
“Considering going to your bank for help if you have an accounts payable problem,” says Davis.  It may be difficult, but it’s not necessarily impossible to receive more credit to help your company through a temporary cash crunch.  Additionally, contact the Small Business Administration to find local organizations that offer free or low-cost classes for entrepreneurs on managing business cash flow.


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