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How to Deal with (and Make Deals with) Your Vendors

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How to Deal with (and Make Deals with) Your Vendors

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John-Gleason-for-web.jpgInsufficient oversight of vendor relations can drain your company's resources and lessen your bottom line. Lost potentials range from money left on the table due to not taking advantage of available or possible discounts, to insider scams perpetrated by dishonest employees or vendor salespeople.

If you haven't reviewed your vendor contracts lately, it's time to do so with your eyes wide open.

Is That the Best You Can Do?
That's the cold, hard question you should ask yourself at least once a year about each vendor contract.

Maybe you're on good terms with all your vendors — but how do you know you can't find even better terms elsewhere? Has your business grown with the vendor in question? Perhaps it's time to strike a better, fairer deal. Has your local business climate changed since you struck your vendor deal? You have to look around and compare. And if you negotiate a better deal with another vendor, your incumbent vendor might be willing to match it, just to preserve the relationship.

At the same time, be sure to treat your vendors fairly. Be honest with them, and don't string them along. Recognize the good work they've done for your firm, and make sure you always hold up your end of the deal. As Megan Sullivan writes at QuickBooks.com, "Paying your vendors on time demonstrates that you respect them and the work they do."

Also remember that many vendors won't offer you a better deal unless you ask for one. Make it clear to your vendors that you're always on the lookout for deals that increase your competitive advantage. After all, it's part of your job as your company's manager.

Can They Sweeten the Deal?
There are many other ways to save money on vendor contracts.

  • Some offer a discount for ordering in bulk. If you started small and have increased your order over time, you might have reached the discount threshold without knowing it.
  • You might be able to get a great discount by utilizing a different timetable. For example, if you buy 30 widgets a month and the vendor offers a discount on orders of 50 or more, you might buy 60 widgets every two months to get the discounted terms.
  • Most vendors will offer a net discount for early payment. Two percent, 3% or even 5% discount net 10 days payment, or greater, are very common discounts that can be arranged. These net discount arrangements and payment terms vary per industry.
  • Can your supplier offer you consignment for their goods? In that situation, your firm has vendor goods on your floor that aren't yours until you sell or use them. This is an especially advantageous vendor relationship for just in time (JIT) manufacturing and reducing A/P burden.
  • Is your vendor a national firm that can provide your firm with marketing help if you utilize their services or products?

Other options include group buys and affinity programs. Again, it's often a simple matter of asking.

Never Accept a New Vendor Purely on an Employee's Word
Even if you don't deal with your vendors directly, it's important that you know who they are.

We get it. You're busy. So you might be tempted to delegate vendor relations to one of your employees — particularly if that employee knows more about that portion of the business than you do.

Instead, use two sets of eyes — yours and your accountant's — to review any new vendor contracts or changes made to the A/P vendor list. The ugly reality is that deceitful practices and outright fraud can happen. Employees sometimes make vendor deals that favor friends or relatives, or potentially siphon money from the company through falsified vendor contracts or phony vendors. Vendors should be assigned numbers, and the vendor list itself should be reviewed annually.

No conscientious, trustworthy employee will balk at you doing your due diligence. Neither will a reputable vendor. In fact, if a vendor is anything less than forthcoming with you, that's a bright red flag.

As Jonathan Long of Market Domination Media told smallbiztrends.com, "There are plenty of potential partners and vendors. Don't waste your time with ones who aren't 100 percent honest and upfront from the beginning." The same point holds true for employees and other business stakeholders.

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John Gleason

Author:

John Gleason

John Gleason is Managing Director of Supporting Strategies | North Shore, MetroWest, Central & Western MA. John’s team helps Massachusetts businesses pursue success by providing professional bookkeeping and controller services.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.