In my time I’ve come across business people who delight in ‘screwing suppliers’ on price, or on other supply terms.
And there is nothing wrong with bargaining for the best deal for your business—better that money stays in your pocket than it goes to somebody else.
However, with this business style there is also potential over the long-term to not, in reality, achieve the best deal for the business.
The fact is that everyone needs to make some money in the supply chain, or parts of the chain will start to falter.
I previously worked for a large regional business which would be approached by farmer co-operatives each year to tender for their business. The owner of my business quickly gave up tendering to co-operatives. If the business was won, well and good, but if it was lost the business had to sell equipment and lay people off, and the owner didn’t want to do business that way. So he didn’t tender.
But what he did do was choose to work with large independent farming operations to the extent that they were receiving goods and prices below the co-operative tender price.
When co-operative members found out about this they began to have second thoughts about whether or not their approach would always produce the best result.
I work with a few rare businesses that have excellent negotiating strength. Their main attributes are that they:
Are profitable and generate strong cash flows
Pay their suppliers on time, every month
Buy significant volumes of goods and services.
These businesses in my experience, don’t ‘work over’ their suppliers, but they quietly expect that each supplier will do the right thing by them in return for selling large volumes and being paid on time. However, woe betide a supplier who takes this relationship for granted—they learn the hard lesson just once.
Most businesses I work with do not have that strength, but it is one that can be developed and is based on a sound integrity in the way one goes about doing business.
Conclusion
I know of customers who have never missed a monthly payment to a supplier; I know others who are at the opposite end of the scale.
The customer/supplier relationship is an important one for managing sound business cash flow. It works best for the customer when that relationship can be developed and improved over time to build a level of trust that will assist the cash flow needs of his business and provide him with attention and rewards that are better than others might receive.
On the other hand, the persistent occurrence of late payments of accounts should be a warning-bell for a business. When this happens regularly the customer needs to make a frank appraisal of his business and its future.
See this article in Tree Fruit June 2015
