Are you thinking of becoming a product based business entrepreneur? Before you go in and start negotiating business terms with suppliers, vendors and manufacturers, I have some advice for you…
Negotiating business terms with suppliers is going to put your negotiation skills to the test, so be sure to thoroughly read this post, take some notes and then go into your next meeting well prepared and ready to get the best deal for you and your business.
First things first, you may be wondering what I even mean when I say negotiate business terms, so let me give a little background. If you want to improve your business’ cash flow or pay down debt, an easy way to do that is to lengthen payment terms with your vendors and suppliers.
Let me share an example, with my previous company FITzee Foods, we were the food supplier for Scripps Hospital, which is a big hospital chain in San Diego. We were actually really fortunate because we were able to get the employee benefits program to subsidize the meals, so we were ultimately able to make the healthy choice, the cheapest choice.
When it came to negotiate our payment terms, how it worked was that I had Scripps pay us 30 days in advance for the food that we were going to deliver over the following month. So, for instance, let’s say we’re going into March, I would actually get paid in full for the projected amount of food we were going to sell to Scripps on March 1st. We got paid in advance!
That transaction would supply me the money to make the food from March 1st through March 31st. I had GREAT terms!
I was fortunate enough to never have to worry about how I was going to pay my suppliers because I was receiving the money into the business before I had to pay the invoices for the raw materials/products.
If you are able to negotiate good terms, or if you’re beginning to struggle, it’s time to take a look at your payment terms and see where you can re-adjust. Once you do that, things can really begin shifting for your business and really help take the stress off of your cash flow.
Maintain Open Communication
Maneesh Sethi, a guest on Success Unfiltered experienced four different near-death situations with his business. He woke up one morning and took a look at his bank account and realized that he had -$2,000. Payroll was coming up, which mean he’d owe about $60k to $70K to employees, plus credit card debt.
Maneesh immediately assumed that it was over. That his business was done.
However, after a few days and some tears over a big breakfast pizza, he received a large wire transfer from Amazon, which more than covered all of his debt.
This intrigued him because every month the same thing was happening. Maneesh realized that at the end of every month, he would be dead, worried and depressed on how he was going to pay all of the debt and payroll for the month, and then suddenly the money would come in (usually from Amazon) and it would all be okay.
He realized, after researching, that while he had negotiated amazing terms with his manufacturer, net 60 day terms, which means that he paid 60 days after the product shipped to him, but that Amazon was paying him on net 60 day terms, 60 days after the product was received.
Every month there was this three or four day gap between when the product was shipped and when the product was received.
Extending his payment terms was the answer to fixing this gap!
Maneesh openly communicated with his manufacturer and asked for net 63 day terms, instead of net 60 day terms, and they gave it to him without any further hiccups.
When you realize that money isn’t a physical asset, but more like a river, you start to understand the flow of money better.
This is how you can start to negotiate and both win, and it’s what led to Maneesh’s breakthrough.
For me, I had a small hiccup when FITzee Foods was inside The Vitamin Shoppe. We had a co-packer making all of our food in New York. My terms with The Vitamin Shoppe were seven days, which means that for the food they purchased had to be paid to me within in seven days. My terms with the co-packer who was making the meals were also seven days.
This occasionally led to a small one day day gap without money coming, but overall my terms on the supply and customer side were equal, so we made it work.
These are things that we don’t always think about when we initially sign-on with a manufacturer, so I don’t be afraid to re-negotiate.
Speak Supplier Lingo
Let’s be honest, if you go in to speak with a supplier, vendor, or manufacturer and don’t have a plan or strategy, you’ll likely walk out of there without receiving what you wanted.
Alternatively, if you take the time to identify your strategy, and can relate your desires to the things that the supplier, vendor, or manufacturer wants or needs, you’re more likely to find the upper hand in negotiations.
I really encourage you to take the time to get to know your suppliers, vendors, and manufacturers; who are their competitors? What markets are they not in? Is your business one that could help take them into a new market they’re looking to start in? Will you have huge orders?
At the end of the day, you want to be sure you’ve done your research, well before going into any meetings.
The shorter your payment terms to YOU the better. The longer the payment terms to your suppliers, vendors, and manufacturers the better! That means more cash flow that you’re able to reinvest into your business and marketing, to help both grow.
Just be sure that once all of the points have been agreed upon, you get a written contract drawn up and signed by you and your manufacturer, supplier, or vendor.
This will protect both you and them.
What terms can you start negotiating today?