asking for discount terms. Many suppliers appreciate getting their money quickly from their customers. Cash fl ow is critical, and they will offer discounts if you pay your bills in ten days or less rather than the typical 30-day terms. Negotiate your best price fi rst, and then ask if the supplier offers discounts for early payment terms.
This is something that most salespeople will not present to you, so you have to ask. Typically, the salesperson wants the sale and is not going to protest these terms. As I mentioned earlier in Chapter 9, we saved $22,000 in 2005 by taking advantage of discounts.
Second, ask if they accept credit card payments. If you can get a supplier to give you early payment discounts and allow you to pay by credit card, you are being fi nancially savvy. If you are turned down on your request for early payment discounts, use the credit card request as a bargaining tool. If the seller agrees to this, you receive an extra 30 days to pay and as much as 45 days if you time it right. You also receive points that can be applied to your card’s reward program. Last year we accumulated 375,000 points on our credit card. At 30,000 to 35,000 points per airline ticket, that’s ten free fl ights per year.
Finally, if the supplier does not offer discounted terms and will not accept credit card payments, then request 60-day terms to pay your bills rather than the normal 30-day terms. The extra 30 days beyond normal terms is extremely helpful in improving your busi- ness cash fl ow. Lack of proper cash fl ow is one of the major factors in business failure today. Extended payment terms are especially helpful in businesses that are just starting out or in a growth mode or those that have expensive inventory.
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and from whom you purchase. This requires a bit of time and effort. It also may require some tough conversations with suppli- ers and some tough decisions about whether to stay with them.
The key, though, is not limiting your purchasing focus to one area or one issue. Every small business makes a huge number of pur- chases annually, and at least some of those purchases need to be examined in a fresh light.
To help you gain this fresh perspective, here are a wide range of actions you can take:
Put your shipping costs under the microscope. You are deal- ing with a service that is in plentiful supply. Consequently, you have numerous options as well as signifi cant bargaining power. Talk to other shippers about their prices; tell your cur- rent shipper if someone else offers you a better deal and see if they’ll match it. Explore cost-saving shipping options, such as adding a day to the shipping time for a better price or using one form of transportation (truck) versus another (air). You might also want to investigate different shipping packages.
By shopping around, we reduced our pallet cost by $1 per shipment, which translated into savings of $2,500 annually.
Evaluate what you’re paying for yard work. Many small companies have grounds that they must maintain. Gener- ally, the two biggest costs in this regard are lawn care and snow removal. We know companies that have saved $5,000 or more annually by moving these functions in-house. They simply have their own employees mow and shovel. Another option is to use an outside service for this maintenance but have it come less frequently. You can also explore the option of hiring local kids to handle these tasks rather than a professional service.
Clean up without being wiped out. Here is another area where the supply generally exceeds the demand. Offi ce cleaning services charge fees that vary considerably, and
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while one cleaning service that charges a premium might do a better and faster job than another one, I would tend to go for the lowest-cost provider in this area. We reduced our offi ce cleaning service by $720 annually by shopping around, and most other small companies can reduce their bills through comparing prices and bargaining.
Filter your coffee expenses. I recognize that this isn’t a big expense, but it’s also an area where small companies waste money. In a time where there’s a premium coffee retailer on every corner, employees are no longer dependent on a company providing a coffee machine and coffee for every department or work area. The odds are that a signifi cant percentage of your employees prefer the coffee they buy at a local retailer. I’m not saying you have to eliminate your coffee service supplier, but you probably would save some money if you found a less expensive supplier or simply bought a few coffee machines and a generic brand of coffee.
Make negotiation a refl ex. You don’t always have to pay list price, though in the United States, that assumption often governs most of our purchases. I know many small business owners and their purchasing managers don’t like to nego- tiate price. They believe they are insulting suppliers when they tell them they’re not going to pay one price but they would be willing to pay another. While it’s true that some suppliers will refuse to negotiate, many others will. They will, that is, assuming your employees are willing to say no to paying list price.
To help encourage a negotiating refl ex, here are some tips other small business owners have found to be effective:
Use the logic card. Don’t just say, “No, that price is too high.” Suggest a solid reason why they should offer a lower price. For instance, your logic might be another supplier is
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149 Purchasing Everything from Cleaning Services to Coffee
offering the same product or service for less. Or your logic might be that you buy in bulk, so you should receive a vol- ume discount. Encourage your employees to come up with a sound argument for requesting a lower price. This logic will make it easier for them to negotiate.
Use trade-offs. To get something, you often have to give something in return. Encourage your employees to have a list of trades they might be willing to make to save money.
For instance, they might be willing to provide the supplier’s name to three prospective customers. Or they might be willing to accept a longer delivery time in exchange for a lower price. Like the logic card, thinking in trade-off terms facilitates negotiation.
Bring in a negotiation expert to talk to your employees.
This might be an investment worth making, especially if you fi nd that your staff doesn’t grasp how to negotiate.
You’ll fi nd that certain consultants are very smart about negotiation tactics, and it might take as little as an hour or two for them to share useful techniques with your purchas- ing department.
Invoke the three-supplier rule. This rule is simple: every so often, your purchasing department must contact two additional suppliers besides the one they regularly use, ask for bids, and compare prices and other elements.
Your employees may do this for big-ticket items but mainly adhere to the one-supplier rule: they’ve already found a supplier they like and trust, and they feel it’s a betrayal if they start shopping around for other suppliers. In reality, it’s a betrayal only if they fi nd another supplier for petty or personal reasons. If someone else is offering a better price, is trustworthy, and has faster service, it’s good business to switch. Yes, contacting three suppliers instead of relying on one requires more time, but it’s time well spent. Your goal should be not to motivate your employees to do this with
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every vendor every time they want to make a new purchase, but to shop around semiregularly to ensure that they’re getting good deals.