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Smarter Finance USA Blog

5 Critical Factors to Renegotiating Payables with Suppliers

Posted by Rob Misheloff

As a husband and father, the best example I can set in the world is by helping others. That’s why I’ve built my career around helping my fellow business owners grow their companies. My hope is that this website and my company help you to grow your business and achieve your goals.
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Doing business in a pandemic...

… really sucks for (most) businesses.

In 2020, almost every business’ plans changed.

Maybe you went from growing your business to just trying to figure out how to stay in business.

(You wouldn’t exactly be alone…)

So… how will some companies keep the doors open?

How Can a Business Stop Losing Money?

When a company isn’t making profits, there are three options:

  • Fail
  • Grow sales
  • Cut costs

Assuming you haven’t decided to fail yet, let’s talk about growing sales.

In normal times, if you have a reasonably solid plan, you can often grow sales predictably enough to overcome costs.

Predictably. That’s the key word.

While the world is always a little unpredictable… COVID makes the world unpredictable, but like unpredictable on steroids.

So… most businesses are finding any way they can to cut costs right now.

Do you want to know the easiest way to cut costs?

Just stop paying your bills.

Of course, you can’t just not pay… but if you can get the places you owe money to let you pay less, that can certainly help, right?

Payables to Suppliers Are Some of the Best Business Debts to Negotiate

If you can’t pay for a loan, negotiating that debt can very adversarial.

Most lenders have special departments where people’s only job is harassing late people to try to make them pay.

It’s a very straightforward concept. They are going to get the most they can squeeze out of you, and never loan you money again.

There’s no reason for them to play nice.

With a supplier…

…things are different.

The supplier has to figure out whether to squeeze you now…

… or find a way to help you stay in business.

Over the long term, they may stay to make much more money by keeping you as a customer than they will by shaking you down today.

Also, 2020 is a special time.

In 2018 if you couldn’t pay your bills, people (and lenders) just assumed you were a deadbeat.

In 2020, the opposite is true. Literally everyone will give you the benefit of the doubt. Your vendors will likely assume you’ll be fine once this turmoil dies down and pay them.

With that in mind… here are 5 important things you’ll want to consider before negotiating accounts payable with your suppliers…

Know What Your Vendors Need

Most people are lousy at negotiating.

Want to know why?

One part of it – they focus on what they need, but not on what the other side needs.

You and your supplier need to both walk away from negotiation with a win.

To make that happen, you’ll need to ask the right questions – and listen.

Once you determine what your vendor needs to make him happy, you’ll be in a better position to negotiate a deal that will put you both in the position to move forward.

Of course, this takes practice. If your business deals with a lot of negotiating, you may be pretty good at this.

If you’re not, it’s probably best to hire a pro.

 

 Negotiating Accounts Payable Costs Your Suppliers Money

The word “free” should be removed from the dictionary.

When a supplier gives you 60 days to pay, they are likely financing the order. The interest paid between the time your supplier orders something and the time you pay for it reduces profit.

For example, your supplier is paying 2% a month for financing, every $100,000 worth of invoices you slow pay costs that vendor $2,000.

This is why many suppliers will offer you a discount if you pay your bill early.

If you offer to make up the difference by paying the financing costs, that may help your vendor get over the hump.

Show Your Suppliers Extending Trade Credit is In Their Best Interest


Telling your supplier you can’t pay and leaving it at that…

… not the best way to negotiate.

The best practice is to remind the supplier how much you plan to spend with them over the next 3 to 5 years.

You can almost always find a competitor that’s happy to take your business… and your suppliers know that.

Just extending all your payables for a month can give your company significant breathing room.

It can be hard for some people to negotiate trade credit effectively. Click here for help. 

You’ll also have convince your suppliers that you’re likely to stay in business long enough to make good on your obligations. This can sometimes mean furnishing financials and/or bank statements to your creditors.

Know What To Expect When You Negotiate With Suppliers

 

Some vendors are easier than others to work with. We partner with some pros who can help you with your negotiation of trade credit and accounts payable.

 

They can often stretch your payback period out to 24 months and cut your monthly payments by 60-80%. 

This kind of payment relief can go far in helping your business get over the hump if you’re strapped.

 

(Click here to check them out)

Like anything, there is a negative..

 

Your creditors will likely want to put you on COD until they are paid back in full. Of course, this should be doable since your other payments drop substantially. (Especially if you get help negotiating some of your other debts).

 

Also, be patient. The negotiation process can take a little bit of time.

Protect Yourself 

Did you personally guarantee your trade credit?  If you did, and your business is having trouble paying, your vendor can sue you personally.

 

In fact, it’s pretty easy for them to win a judgment against you… which can destroy your personal credit.

 

So… if you have personally guaranteed any of your accounts payable, it’s pretty important to negotiate sooner rather than later if you won’t be able to pay.

Conclusion

If your business can’t pay it’s payables, negotiating with your suppliers may be the best option.

 

Remember it is always better to negotiate than go into hiding and hope people forget you owe them money.

 

If you need help negotiating with your suppliers, please call (800) 786-5696 or click the picture below.

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