How to increase supplier pay terms???

[JamesUK]

HI everyone, this is my first post on UKBF so be gentle!!

Basically, I want to know how I go about increasing the pay terms that I have with my main suppliers. Basically, im on the usual 30 days from goods being received term that most suppliers offer. We have used the two suppliers that I have in mind since we opened the business (over 8 years ago). For one of the companies, we are the UK's best selling independent retailer (buying around £200,000 a year from them). With the other company, we spend around £150,000 a year with).

I have always made sure that suppliers have been paid on time, mainly to build up a good relationship with them. Also, with both companies, we have a good sales history, and the amount that we buy from them has generally increased from year to year. However, with both of the companies, we receive a 4 - 6% rebate at the end of each year.

So how would I go around approaching the companies and asking about increasing payment terms? They arent small companies (one had a turnover of £70 million last year, which was up by £4 million from the previous year, when the industry as a whole was generally in decline).

Any advice would be gretly appreciated!

 

[Mike by the Sea]

Hi JamesUK

It sounds like you have a very firm footing with these companies. In my experience, when a company comes to me with this type of request and have a good business case for asking, then it can often be achieved. The purpose of the 30 days is to ensure that cashflow is optimised.

I would talk to your contacts and find out from them who makes this type of decision in the company and get in touch and meet up for lunch. As it is probably the Financial controller or equivalent, they often only get out of the office once a year and that's with the Auditors :smile: .

All the best

Mike

 

[SillyJokes]

Sounds like you should just ask for a better deal - have you got the prices down as far as poss? Your rebate sounds rather poor to be honest, but I obviously don't know your market and the markups.

You are spending a significant amount of money - you should be getting the best possible deal. Maybe you should set up a meeting with a proper decision maker and ask for one.

One thing is for sure, they wont' just give out better deals if they don't have to.

 

[JamesUK]

Thanks for the advice from the two of you.

The market that im talking about is the garden landscape market (supplying patio's, fencing, decking etc to mainly retail customers). We have 3 centres located in the South West and are planning to open up the fourth pretty soon.

With regard to the rebate, that amount is pretty much standard in the industry, but does increase and decrease in line with what you spend with them. We also get a lot of good deals from one of the companies - discount lines etc, mainly due to the good relationship that we have with them.

One of the companies has just been taken over - would this be a good time to get in and ask from an extended payment period, or should I wait 6 months or so so that I can get to know the new management?

And also, how should I go about asking for it? There are a lot of other possible suppliers, so should I go along the line of "give us an extended payment term or we will go elsewhere" and so risk damaging the 8 year relationship that has been built up, or go for a more subtle approach?

IDeas are appreciated

 

[Mike by the Sea]

Hi JamesUK

Given that you mentioned in your initial post that these suppliers were of a significant size, I am not sure that it is worth damaging your relationship by going in hard, unless you can demonstrate that the other suppliers can give you significant improved terms over your current deal.

Also, I wouldn't wait 6 months as this is your money we are talking about, not theirs. If they are astute, they will understand the value of long-term customer relationships and should give you a fair hearing. Having been involved as a supplier to garden centres etc, in the past, it was often rare to have more than a 12 month relationship, let alone 8 years. :smile:

I would suggest that you take a subtle approach and have the evidence of better offers in your back pocket as plan B.

All the best

Mike

 

[RapidBI]

I agree with the other Mike - go ask - but like all good neg. if you want 40 days as for 50!

Mike Morrison
RapidBI - for Rapid Business Improvement
www.rapidbi.com

 

[Admiral Collections]

Ok asking for EXTENDED credit terms (you only ask for INCREASED credit limits) is all down to the Credit Controller who deals with your account. I will cut the bullshit and tell you this, there are many factors that are taken into consideration in these situations. I have worked for companies where extended terms have actually been posed with the same threat that you are thinking of using. Now, the MD/Sales Director might not want to lose your business and that's a fact, as they are probably sales driven blah blah, however, a company with the turnover you are talking, I am assuming has a Credit Manager and getting by the Credit Manager isn't as simple. They are employed to ensure that no added risks are imposed on a company and extended credit terms are seen as a risk. For example (and I am giving you the mind of a credit controller here) I would ask why you wish to extend in the first place? Are you over trading? Why should we accomodate your growth? That would set alarm bells off for me. Secondly, I would credit check you, and thirdly, if the company uses debt insurance your case will be put to them and if it comes back a no, then sorry, you won't get what you want. Then again, I'm just a mean bitch but an excellent credit manager!

You will not be alone in asking for extended terms, companies do it all the time, so bear in mind you will also probably be in a long queue.

Hope this helps

Nic

 

[Admiral Collections]

OOps sorry, realised you asked us to be gentle!

Sorry, don't take it personally James

 

[profitxchange]

Why do you need to extend the payment terms? Are you having cash flow problems? If this is the case then you need to look at a different solution.

Whislt your doing your negotiations, add a request as to how they might support occasional promotions or sales with special prices or payment terms.

As an alternative to longer payment terms, would they make a cash contribution you your marketing, POS kit, premises referb. I have used and been the target of such requests. Nothing is off limits.

Good luck!

 

[Spiritus]

A sneaky way of trying to extend your credit terms is to say you are changing or "automating" your payments system for every supplier to just one payment run a month. I don't know how well the customer in question knows your business but an effective approach is to distance yourself from this change to the system e.g. "my accountant says our payments will be more efficient and has requested we do this" OR "we've had a new accounts package installed" etc etc

I don't know how you pay now-if it's by cheque then this strategy might work for you.

Tell them your new system is set up to pay them on a given date every month by BACS (bank transfer). Companies prefer to receive payments by BACS and are somewhat placated if they know they will receive money from you on a given date so this could be the carrot to gain their acceptance. Obviously, you would need to ensure that you DO actually pay them on the date you propose.

30 days month end is acceptable for many companies i.e.all June invoices are paid at the end of July.

Good luck.

 

[JamesUK]

Hi Profits,

Thanks for your ideas. To be honest, they do treat us well. They contribute to our marketing on a regular basis, and make sure that we are on the top of their calling lists if any special promotions are around, because we usually just buy the lot.... after some bartering of course.

The reason that Im after extended payment terms is basically greed if im honest - cash flow is fine as we are in our busiest time at the moment. I just thought as we were now a bigger company that we could look at extending the payment terms.

 

[KM-Tiger]

Thanks for your ideas. To be honest, they do treat us well. They contribute to our marketing on a regular basis, and make sure that we are on the top of their calling lists if any special promotions are around, because we usually just buy the lot....

They probably treat you well as you are known as a reliable and regular payer!

Can you use that as a lever to get better pricing and discount?

 

[KateCB]

I have to agree with everyone!

Extended credit terms may be offered to keep your business, however it would set alarm bells ringing in my company - why after 8 years? Are they struggling?

Arranging a larger discount or rebate given the volume of sales may be a better strategy - this is what I have done with my suppliers, and they are more inclined to give a 5- 8% additional discount than allow longer to pay - its all about cashflow, if your cash stops flowing to them in time for them to satisfy their suppliers, it may be THEM that end up struggling - as someone else said, you won't be the only one asking the question!

Kate
Htpp://www.martialdesign.co.uk

 

[Ian J]

The reason that Im after extended payment terms is basically greed if im honest - cash flow is fine as we are in our busiest time at the moment. I just thought as we were now a bigger company that we could look at extending the payment terms.

According to your figures you are buying and paying for approximately £30,000 of product per month. If you were to have your credit period extended from 30 to 45 days this would at best reduce your overdraft by £15,000 saving you £1,150 in interest per annum. If you don't have an overdraft the saving would be much less but my point is that the saving only equates to 0.32% of your purchases from the two companies anyway and if you are going to start bargaining with the suppliers you should try and drive a much harder bargain than that.

A reduction of 2.5% in your prices from your suppliers would save you £8,750 per annum which starts to make more financial sense and as part of your bargaining you could remind them that you always pay your accounts promptly.