You can improve cashflow for better payment terms with a supplier negotiation strategy for suppliers and co-manufacturers. This is crucial for managing your working capital effectively. Here are some steps you can take for a successful contract negotiation in supply chain management:
- Understand industry standards: Familiarize yourself with typical payment terms and cash flow practices in the apparel and beauty industry. While there may not be a universally standard set of terms, common practices often include 30-day payment terms (Net 30) or 45-day payment terms (Net 45). However, these terms can vary depending on factors such as your relationship with the supplier, order volume, and industry norms. Additionally, you are usually required to have some form of % deposit. This can be a 30% deposit before production begins.
- Assess your cash flow needs: Evaluate your company's cash flow requirements and identify areas where improved payment terms can provide significant benefits. Consider your sales cycles, inventory turnover, and cash conversion cycle to determine the ideal payment terms that align with your operational needs.
- Highlight your financial stability: If your company has a strong financial position, emphasize this during negotiations. Share financial statements, credit references, or any other relevant information to demonstrate your creditworthiness. Suppliers may be more open to negotiating favorable payment terms if they perceive you as a reliable and stable customer.
- Leverage order volume and growth potential: Emphasize the potential for increased order volume or long-term growth in your partnership with the supplier. Suppliers may be more willing to negotiate better payment terms if they perceive the opportunity for future business expansion. Show how improved cash flow can facilitate increased orders and mutually beneficial growth.
- Offer early payment incentives: Consider proposing early payment incentives to suppliers. For instance, you can offer to pay invoices within a shorter period, such as 15 days, in exchange for a discount on the total invoice amount. This benefits both parties, as suppliers receive faster payment while you gain a cost advantage.
- Negotiate phased payments: If your cash flow allows, negotiate phased payments rather than lump-sum payments. This involves breaking down payments into multiple installments based on specific milestones or delivery stages. This approach can help distribute your cash outflows more evenly and mitigate the impact of large upfront payments.
- Build trust and rapport: Establish a strong working relationship with your suppliers based on trust and open communication. Consistently fulfilling payment obligations and maintaining transparent communication can strengthen your negotiating position when discussing payment terms. Suppliers are more likely to consider favorable terms if they have confidence in your reliability and commitment.
- Explore financing options: If negotiating better payment terms directly with suppliers proves challenging, consider exploring financing options through third-party providers. Invoice financing or supply chain financing allows you to access funds quickly by leveraging your outstanding invoices. This option can help improve your cash flow while allowing suppliers to receive timely payment.
- Manage a supplier network: Leverage softwares like Centro to manage multiple suppliers at once more easily. In turn, having a supplier network enables you to both reduce the risk of supply chain issues and negotiate prices by having more manufacturing options. Multiple suppliers is hard to manage when leveraging only spreadsheets because tracking COGS and POs is harder with different methods of communication and logistics. However, with a platform like Centro, you can manage the process more seamlessly, and ultimately have better bargaining position.
Remember that negotiation outcomes will depend on various factors, including the supplier's policies, market conditions, and your specific circumstances. It's essential to approach negotiations with a clear understanding of your financial needs and the potential benefits for both parties.