Survey

As your organization's buyer, do you read formal purchasing agreements?

Only for a formal written contract.
Only for a major purchase involving a high dollar amount.
Only skim unless for a high amount.
Read every written agreement in detail.
Only read from a new or recent supplier.

The nation’s financial crisis has resulted in tightening of both business and consumer credit. Many bu..." />

Lower Your Costs By Helping Suppliers

Date: 11/01/2008

The nation’s financial crisis has resulted in tightening of both business and consumer credit. Many businesses cannot even obtain short term loans which they routinely depend upon to conduct business.

Businesses of all sizes, but especially small business, use short term loans to help finance inventory, pay salaries, and cover other expenses until they receive payment from their customers. All of this opens up an opportunity for the smart buyer whose company has available cash to use. (Note the difference between the shortage of cash situation mentioned in the "Questions from Members" column.)

If you are a buyer who normally uses payment terms of Net 30 or longer you may be able to obtain significant cost reductions by negotiating changes to those terms.

The most usual business payment term is Net 30 where the buying organization is obligated to pay the invoice within thirty days. However, some buyers obtain Net 60, Net 90, or even Net 120, terms. This allows the buying organization to use the money for other purposes between the period when the goods or invoice is received and the time that the bill is due. This has real dollar value because the company does not then need to borrow funds or pay interest.

However, when the buying organization has plenty of cash and the seller needs cash to obtain raw material or other inventory or to pay bills, the buyer is in a good position to obtain significant early payment discounts. Discounts of 1% are common, but 2%, 2¾%, or more may be possible. If a supplier is desperate for funds, a good price reduction may be possible in addition to the early payment discount if early payment is guaranteed. Particularly favorable to a supplier in such a situation, may be terms of Net (payable upon delivery) or even partial payment in advance.

It is often necessary to deal with general management or financial management to obtain payment concessions. Salespeople may not have the authority to make payment agreements or may not know their company’s real needs.

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