Paying Your Suppliers What kind of payment methods will your suppliers prefer?
While most service providers bill you automatically withoutrequiring credit references, equipment and merchandise suppliersare more cautious. If you are just getting started in business, youwill not be able to give them trade references, and your bankprobably will not give you a credit rating if your account has justopened.
If your supplier is small, the manner in which you presentyourself is important in establishing credit. You may find thegoing tougher when dealing with a large supplier. A personal visitwill accelerate your acceptance.
Present your financial statements and a description of yourprospects for success in your new business. Don't even think ofinflating your financial statements to cover a lack of references.This is a felony and is easily detected by most creditmanagers.
Some suppliers will put you on a c.o.d. basis for a few months,knowing that if you are under-financed, you will soon have problemswith this payment method. Once you pass that test, they will issueyou a line of credit. This creates a valid credit reference you canpresent to new suppliers until credit agencies accumulate enoughdata on your business to approve you for suppliers.
Most suppliers operate on a trade credit basis when dealing withother businesses. This basically means that when you're billedfor a product or service, you have a certain grace period beforethe payment is due (typically 30 days). During this time, thesupplier will not charge interest. It's similar to buying aproduct with a credit card.
Carefully consider all costs, discounts and allowances beforedeciding whether to buy an item. Always take into account what thefinal shelf cost of any item will be. The most common discounts aregiven for prompt payment; many suppliers also give discounts forpayment in cash. When you can, specify on all orders how the goodsare to be shipped so they will be sent in the least expensiveway.
Occasionally, suppliers grant customers discounts for buying inquantity, usually as a freight allowance for a specific amount ofmerchandise purchased. Some suppliers pay an increasing percentageof the freight bill as the retailer's purchase ordersincreases; others simply cover the entire freight cost forpurchases over a minimum amount.
If you order merchandise from distant suppliers, freight chargescan equal as much as 10 percent of your merchandise cost. Ask whata manufacturer's or supplier's freight policy is beforeordering, and make sure the order is large enough to warrant thedelivery charges. If the manufacturer does not pay freight on backorders, you might consider canceling a back order and adding it tothe next regular shipment.
Become familiar with each of your suppliers' order-fillingpriorities. Some suppliers fill orders on a first-in, first-outbasis; others give priority to the larger orders while customerswith smaller orders wait. Consequently, most retailers specify acancellation date on their orders. In other words, any goodsshipped after that date will be returned to the suppliers. Byspecifying a cutoff date, you increase the chances that your orderswill be shipped promptly and arrive in time.
Give careful attention to shipments when they arrive. Check tomake sure you've received the correct amount and type ofmerchandise, and make sure the quality matches the samples you wereshown.
Excerpted from Start Your Own Business: The Only Start-UpBook You'll Ever Need, by Rieva Lesonsky and the Staff ofEntrepreneur Magazine, © 1998 Entrepreneur Press
