Leveraging Your Suppliers
Several months ago I attended a discussion for entrepreneurs. One speaker, who was an experienced entrepreneur, noted that successful startups often depend on the ability to build the company with other peoples money. He suggested getting your attorneys, accountants, and other service providers and suppliers to do work now for the promise of payment later.
This has become a common theme with many entrepreneurs. If done properly, it can help a quickly growing business maintain cash and avoid imploding. If it is done wrong, however, it can cripple the business and lead to an early exit. Few purchasers or investors will be impressed if the business is being sued by its suppliers or if it learns that the business has negative relationships with them. You would surprised how often an investor knows the accountant, attorneys, or other suppliers to the business. If the investor asks about the company, the last think the entrepreneur wants is a reply like "Oh, those deadbeats."
If you are going to leverage your suppliers - either service providers or suppliers of goods, here are seven important rules.
1. Be upfront. Many suppliers are willing to work with cash starved startups as long as it is clear what the terms are going to be. Is the company going to pay in 90 days instead of 30? Is the company paying costs, but getting discounted fees? Whatever the arrangement, make sure both sides know. If the company unilaterally decides to string out its providers, it should not be surprised if the providers make them ex-clients. A company may finally get the big contract only to find its providers unwilling to deal with them, or requiring cash in advance.
2. Be a low maintenance client. Many entrepreneurs are looking for a deal on services. The entrepreneur may get a good deal if the work can be performed quickly and efficiently and he/she respects the service provider's time. If, however, entrepreneurs consume a large amount of time for the fees generated or otherwise are difficult to work with, they will quickly become former clients.
a. Provide the information, etc. requested. An advertising agency may be willing to give a deal to a startup. If they have to call repeatedly to get the art work, the photographs, the copy, etc., the cost benefit of representing the startup quickly shifts to the negative. Give service providers the information they request promptly or the good deal will go away.
b. Respond to communications and deadlines. Starting a new venture can be very time consuming. However, one should prioritize to ensure timely responses are made to inquiries and deadlines. If a law firm has to call the owner of a small company four times to get instructions before a pending deadline, the company will probably see a change in the discounted terms or bills for the additional time. Clients who respond promptly and completely are viewed as good clients and are more likely to get good service in return.
3. If you cannot pay - call. One of the most aggravating situations is when a client asks for payment terms after being delinquent on a bill for a number of months. Payment plans are best worked out while the supplier still views the company as a good client. After four or five months of no payment, a company has used up most of the good will it may have had. Asking for six months to pay a bill that is already six months past due may result in being sent to a collection agency.
If a company cannot pay anything one month, the contact with the provider should call and explain the situation. It will at least demonstrate that the company is aware of the bill and has enough respect for its supplier to advise them that a payment will not be coming that month. If possible, a company should pay something, along with a note apologizing for the short payment and explaining that the company is working on getting the account current. A client who is making an effort will get much more leniency than a client who has not paid for 6 months with no explanation.
4. Do not make false promises of payment. Some startups will make promises of payment just to keep a supplier at bay and to continue to receive its products or services. Not only are false promises of payment annoying, they may amount to fraud if the company truly does not have the resources to pay. Some entrepreneurs get a rude awaking if when they get named personally in a lawsuit by a creditor who learns that it has been extending credit based on misrepresentations.
5. Show some love. If a supplier has treated a company well, the officers, etc., should show some love by recommending the supplier to others who may be in need of the products or services. A client who has lead to other clients will be viewed more favorably and will get better treatment when the chips are down. The company can casually let the supplier know that they may be getting a call from so and so to make sure the supplier knows the source for the new client. DO NOT, however, act as if this compensates for not paying the bill. (It will subconsciously, but not if it appears that it is expected). Additionally, it is best to do this during good times, so the good will is high before problems arise.
6. Make sure the supplier gets taken care of. Sometimes, businesses go under. Everyone understands that. Some entrepreneurs attempt to take care of themselves first, getting everything they can before the company goes under. It is best for the entrepreneur to make sure suppliers get taken care of - at least partial payment. If it looks like the officers were protecting themselves first, or making false promises of payment, they will get a chilly reception in their next venture. If the individuals have multiple failed ventures in a row, suppliers may not only elect not to deal with them, they may also advise other suppliers to avoid them as well.
An entrepreneurs reputation is important. Future investors will run if their accountants, attorneys, or other suppliers tell them to be careful of so and so. Taking care of yourself first can be penny wise and pound foolish.
7. Be loyal. If a supplier has treated a company well, the company should be loyal when the business is successful. When a company gets a deal early on from a supplier, there is an expectation that the supplier will benefit in the long term by continued business. If the company takes its business elsewhere the first time it gets a lower price, the company may get a chilly reception if it ever has to go back to the original supplier.
It is not uncommon for the low bidder to not come through, leaving the company no choice to go back to its original supplier. Loyal customers usually get better treatment when times are good and more leniency when the chips are down.
Remember, allot of business success is relationships. Be good to those who have been good to you and it will pay off in the long run.
This has become a common theme with many entrepreneurs. If done properly, it can help a quickly growing business maintain cash and avoid imploding. If it is done wrong, however, it can cripple the business and lead to an early exit. Few purchasers or investors will be impressed if the business is being sued by its suppliers or if it learns that the business has negative relationships with them. You would surprised how often an investor knows the accountant, attorneys, or other suppliers to the business. If the investor asks about the company, the last think the entrepreneur wants is a reply like "Oh, those deadbeats."
If you are going to leverage your suppliers - either service providers or suppliers of goods, here are seven important rules.
1. Be upfront. Many suppliers are willing to work with cash starved startups as long as it is clear what the terms are going to be. Is the company going to pay in 90 days instead of 30? Is the company paying costs, but getting discounted fees? Whatever the arrangement, make sure both sides know. If the company unilaterally decides to string out its providers, it should not be surprised if the providers make them ex-clients. A company may finally get the big contract only to find its providers unwilling to deal with them, or requiring cash in advance.
2. Be a low maintenance client. Many entrepreneurs are looking for a deal on services. The entrepreneur may get a good deal if the work can be performed quickly and efficiently and he/she respects the service provider's time. If, however, entrepreneurs consume a large amount of time for the fees generated or otherwise are difficult to work with, they will quickly become former clients.
a. Provide the information, etc. requested. An advertising agency may be willing to give a deal to a startup. If they have to call repeatedly to get the art work, the photographs, the copy, etc., the cost benefit of representing the startup quickly shifts to the negative. Give service providers the information they request promptly or the good deal will go away.
b. Respond to communications and deadlines. Starting a new venture can be very time consuming. However, one should prioritize to ensure timely responses are made to inquiries and deadlines. If a law firm has to call the owner of a small company four times to get instructions before a pending deadline, the company will probably see a change in the discounted terms or bills for the additional time. Clients who respond promptly and completely are viewed as good clients and are more likely to get good service in return.
3. If you cannot pay - call. One of the most aggravating situations is when a client asks for payment terms after being delinquent on a bill for a number of months. Payment plans are best worked out while the supplier still views the company as a good client. After four or five months of no payment, a company has used up most of the good will it may have had. Asking for six months to pay a bill that is already six months past due may result in being sent to a collection agency.
If a company cannot pay anything one month, the contact with the provider should call and explain the situation. It will at least demonstrate that the company is aware of the bill and has enough respect for its supplier to advise them that a payment will not be coming that month. If possible, a company should pay something, along with a note apologizing for the short payment and explaining that the company is working on getting the account current. A client who is making an effort will get much more leniency than a client who has not paid for 6 months with no explanation.
4. Do not make false promises of payment. Some startups will make promises of payment just to keep a supplier at bay and to continue to receive its products or services. Not only are false promises of payment annoying, they may amount to fraud if the company truly does not have the resources to pay. Some entrepreneurs get a rude awaking if when they get named personally in a lawsuit by a creditor who learns that it has been extending credit based on misrepresentations.
5. Show some love. If a supplier has treated a company well, the officers, etc., should show some love by recommending the supplier to others who may be in need of the products or services. A client who has lead to other clients will be viewed more favorably and will get better treatment when the chips are down. The company can casually let the supplier know that they may be getting a call from so and so to make sure the supplier knows the source for the new client. DO NOT, however, act as if this compensates for not paying the bill. (It will subconsciously, but not if it appears that it is expected). Additionally, it is best to do this during good times, so the good will is high before problems arise.
6. Make sure the supplier gets taken care of. Sometimes, businesses go under. Everyone understands that. Some entrepreneurs attempt to take care of themselves first, getting everything they can before the company goes under. It is best for the entrepreneur to make sure suppliers get taken care of - at least partial payment. If it looks like the officers were protecting themselves first, or making false promises of payment, they will get a chilly reception in their next venture. If the individuals have multiple failed ventures in a row, suppliers may not only elect not to deal with them, they may also advise other suppliers to avoid them as well.
An entrepreneurs reputation is important. Future investors will run if their accountants, attorneys, or other suppliers tell them to be careful of so and so. Taking care of yourself first can be penny wise and pound foolish.
7. Be loyal. If a supplier has treated a company well, the company should be loyal when the business is successful. When a company gets a deal early on from a supplier, there is an expectation that the supplier will benefit in the long term by continued business. If the company takes its business elsewhere the first time it gets a lower price, the company may get a chilly reception if it ever has to go back to the original supplier.
It is not uncommon for the low bidder to not come through, leaving the company no choice to go back to its original supplier. Loyal customers usually get better treatment when times are good and more leniency when the chips are down.
Remember, allot of business success is relationships. Be good to those who have been good to you and it will pay off in the long run.
Comments