Focus on Cash Flow (Part 2): Optimising Supplier Management
Many business owners and managers overlook the importance of supplier management, instead focusing on debtor collection and stock control, but they are doing themselves a dis-service. Here’s why…
In my last blog I looked at how cash flow can be strengthened through the careful management of debtors. But cash inflow is only half the story. In this blog I’m going to look at the flip side: managing cash outflow by optimising relationships with your creditors and suppliers.
When was the last time you assessed your business’ suppliers?
Regularly reviewing supplier terms can give you confidence that your business is receiving high quality products and services at the best prices.
Consider implementing an annual supplier review process that includes:
- Reviewing which terms are most important/relevant to your business (e.g. quality, reliability, price, credit terms, etc).
- Creating a list of preferred suppliers (using the above prioritisation as a guide).
- Regularly reviewing your preferred suppliers list. Pay particular attention to supplier performance against your own pre-determined priorities, and the changing needs of your business. It’s easy to fall into the rut of continuing to use suppliers that no longer meet your business needs.
- Calculate the benefit of early payment discounts – they may not always be the best option.
In my previous blog, I highlighted the importance of communicating expectations with your debtors.
As with most things, it’s a two way street – as a debtor to your suppliers, you also have the following obligations and expectations which need to be communicated:
- Ensure payment terms are understood (include them on each purchase order, if need be).
- Avoid withholding payment without communicating with your supplier.
- Review payment terms regularly for each of your preferred suppliers against their competitors. Where a competitor can offer more favourable terms, consider giving your existing supplier an opportunity to price match.
Finally, although it’s important to ensure your suppliers are meeting your business’ needs and standards, it’s equally important to nurture relationships with them – you never know when you might need to ask a favour!
Here are some tips on how to nurture relationships with your suppliers:
- Meet regularly with suppliers to discuss the changing needs of your business (they may be able to assist with increased credit terms, new products, etc).
- Implement processes to ensure that when payments are not made on time the supplier has a designated contact person to communicate with.
- Proactively manage periods of cash shortage by approaching suppliers for a payment plan.
- Be seen as a solid, dependable customer (this doesn’t necessarily mean never defaulting on payment; instead it’s about communicating).
As you can see, maintaining a focus on supplier performance relative to both your expectations and competitor offerings is the key to obtaining the best deals for your business.
When you’ve got those deals, make sure you hold onto them through regular communication with your supplier and creditors.
In my next blog, I’ll be taking a close look at stock management strategies.
Elizabeth Mawby was a former Client Director at Vantage Performance, Australia’s leading performance improvement and turnaround firm – solving complex problems for businesses experiencing major change.