Eight tips for improving your payment terms with suppliers

Improving your payment terms with suppliers can greatly benefit your business. It’s in these negotiations that you can establish payment terms that better suit your business needs, such as split payments or extended invoice periods, but also strengthen your relationship with your suppliers in the process.

You may be a master of your trade and at the top of your game, but for your business to stay out of debt collection territory, you must also be a master of cash flow. Balancing the cash coming in with the cash going out is key – and while you can’t control when customers pay, you can certainly negotiate favourable terms with your suppliers.

So, how do you do it?

Keep your suppliers on good terms

Communication is key. Instead of a simple email, be sure to pick up the phone every now and then. Ensure they know – and like – your business. Always respond to their requests same day, if not sooner. Meet them face to face whenever possible, as you need to build a strong relationship prior to seeking an adjustment to your payment terms.

Pay them on time

Prompt and predictable payment will keep you in their good books. It’s always a good idea to allocate a time to pay all of your invoices, as this will ultimately remove the possibility of late payments. Sending out a remittance advice to your respective suppliers is also a very good way to extend communication so that they are aware that your payment is on the way.

Check your systems

Ensure there is no chance of late payments, over payments or missed payments. Most businesses use accounting software like Xero, so it’s always good to set up reminders so that you don’t forget to meet these business obligations.

Find payment terms to save you money

Review your supplier terms regularly and look for lower prices and discounts for timely payments. Also, negotiate! Can you extend the payment terms from, say, 30 days to 45? You must remember that for suppliers to extend trading terms, it has to be somewhat advantageous for them as well, so make sure that your relationship is solid before trying to negotiate new terms.

Be realistic

Ninety-day terms do not fall into this category. Only ask of your suppliers what you yourself could supply. If you’re in the process of proposing new terms, you should consider the size of your company versus their other clients, current industry standards and average order volumes prior to defining what new terms you’re after.

Secure alternate costings

There is nothing wrong with a little healthy competition. Be sure to seek two to three competitors’ quotes for the same goods or services provided and then bring them to the table next time you meet.

Stay on the front foot

Encountering a cash flow issue and know you are going to need to pay certain suppliers slightly later than when their invoice is due? Pick up the phone and call them. Ensure them this is a one-off and you are on top of it. You’d appreciate the same treatment if you were on the opposite side.

By recognising these simple steps towards improving your payment terms with suppliers, you’ll also be improving your business by setting up the necessary systems and processes to facilitate stronger relationships.