Tips to build vendor relationships and conserve business cash flow

Businesses today are facing a number of challenges, from supply chain issues to negative cash flow. While each business’s individual struggles may be unique, many business owners are looking to strengthen one common aspect of their businesses to keep their goods and their cash flowing — their vendor relationships.

By building strong relationships with your vendors, you can help your business thrive during even the toughest of times.

1. Maintain a lean, mean supply chain machine

During tough times, it’s not unusual for a business to streamline operations. This includes business relationships with vendors and suppliers. Identifying, evaluating and onboarding new vendors can be a timely and expensive process for any business owner. That’s why, when it comes to choosing vendors, sometimes less is more.

Consolidating business vendors can provide benefits at every stage of production, from procurement to fulfillment and beyond. Having a few trusted suppliers can go a long way toward cutting costs, increasing efficiencies, reducing supply chain issues, providing more accurate forecasts and enabling predictive scheduling that results in better customer experiences.

In addition to saving on administrative and transactional costs, businesses that work with a smaller number of vendors typically increase their spending volume with each vendor and develop stronger relationships. This opens up the door for high-volume discounts, promotions and preferential pricing. Businesses can pass these savings on to customers to gain a competitive edge.

2. Negotiate longer payment terms

Vendor relationships are like any relationship: The stronger they are, the more likely you are to help each other out.

For instance, let’s say you need to borrow money. Chances are you wouldn’t have much luck if you went up to a complete stranger or casual acquaintance and said, “I need to borrow $100, and I’ll pay you back in three months.” The same is true for negotiating net terms.

Depending on your supplier, you may be required to pay cash on delivery. Or you could be allowed a grace period of 30, 45, 60 or even 90 days, known as net payment terms. If payment is due within 30 days, that’s considered a net 30 account, 45 days is a net 45 account and so on. The better your relationship with your vendor, the more likely they are to agree to longer payment terms.

The goal is to extend the time period between your accounts payable (payments going out of your business) and your accounts receivable (money coming into your business). The longer the net payment terms, the better you’ll be able to conserve business cash flow. Try to negotiate the longest term possible. If you are able to pay it back early, you may get an early payment discount.

3. Ensure many happy returns

Chargebacks and returns cost businesses and can diminish customer experiences and loyalty. Many vendors charge restocking fees for items that are not damaged. Businesses then either have to eat the cost or pass it on to their customers. Neither option is good for your bottom line.

When you have a solid relationship with your vendors, you may be in a better position to ask them to absorb some or all of the costs, especially if you place the bulk of your orders with them.

4. Deliver on time, every time

No matter how loyal a customer may appear, it can all go out the window if they find empty shelves or delays in shipping. Customers won’t hesitate to go to a competitor that has the items they want.

Having good relationships with vendors is one way to ensure that they will prioritize your business when it comes to receiving popular items or getting expedited shipping on request. This means allowing fair lead times, providing consistent orders and paying invoices on time. When you have a good relationship, a vendor will want to keep you happy and is more likely to bend over backward to do so.

Bring it all together

A strong client-vendor relationship benefits both parties and is something that’s worth working on. While it might take time to develop the relationship, it can be an important factor in helping you build customer trust, conserve cash flow and grow your business. For more ways to gain better value for your business, speak with a Chase business banker.