Maximising your cash flow includes implementing smart strategies around your accounts payable – and setting up favourable terms with suppliers plays a large role in this process.
Remember that as the customer you have the bargaining power. Suppliers want your business and most are willing to negotiate favourable terms, especially if the relationship has the potential to generate significant business.
Simon James, a partner with HLB Mann Judd, says it is worth negotiating with suppliers about payment terms.
‘‘Most small businesses don’t have a dedicated purchasing person so it makes sense to conduct an annual review to see if the terms are the best for them,’’ he says.
Invoicing terms range from payment ‘‘on receipt’’ to a certain number of days after receipt, such as 30, 45 or 60. The longer the term, the longer you can keep your cash in the bank.
When negotiating with suppliers, Mr James says the key point is to understand their point of view. If the supplier is short of funds, you might offer to pay early in exchange for a discount, say 3 per cent of the total.
‘‘If funds are not an issue for your supplier but they are for you, you might suggest an extension of the time to pay your bill but offer to pay a higher price,’’ Mr James says.
Ben Shields, a partner with Deloitte Private, says: ‘‘While offering to pay more doesn’t seem like a particularly good move, if you have cash-flow constraints it might make good business sense.’’
‘‘If you ... have negotiated only on price and got it down to the bare bones there may be little room to negotiate. If you value service, then you might be happy to pay more on price to get the service you want.’’