Negotiating better payment terms with suppliers can significantly improve your business’s cash flow and financial stability. In South Africa’s competitive and often unpredictable business environment, this can be critical.
In this article, we explore practical strategies South African business owners can use to negotiate more favourable supplier agreements.
Why it’s worth negotiating better payment terms
For businesses, especially small businesses in South Africa, cash-flow management is crucial to survival and growth.
By negotiating better payment terms, businesses can maximise cash flow, minimise risk and provide the leverage required for a steady supply of quality products.
The key is to develop negotiation strategies that are targeted, flexible, transparent and mindful of supplier challenges.
Set the terms early
Where possible, open negotiations by discussing a payment arrangement that works for your business. Include pricing, payment schedules and delivery, and explain how these terms are beneficial to business operations.
Setting payment terms upfront ensures there are no misunderstandings. It reduces the risk of payment disputes, and fosters stronger supplier relationships.
Understand supplier challenges
The best payment terms are favourable to both parties. Achieving equity involves understanding supplier challenges.
In South Africa, for example, delays in B2B payments have reached alarming levels. That’s bad for business and the local economy.
According to South African Business Matters, 91% of SMEs are owed money outside their terms of payment. Businesses with access to credit survive; others are forced to close.
Rather than pushing for net 90- or 120-day terms, and potentially losing a trusted supplier, agree to set mutually-beneficial terms – even if they don’t align fully with your business’s cash-flow cycle.
Be upfront about your business needs
Skilled negotiators never issue ultimatums – they are persuasive in pursuit of their goals. The same sentiment applies to negotiating payment agreements with suppliers.
A good way of getting favourable terms is to be forthright about how more flexible payment schedules can support your company.
It may be to boost liquidity, enabling the business to innovate, grow and seize new and potentially lucrative opportunities. When your venture succeeds, so does the supplier’s.
Focus on payment methods
When negotiating terms, include payment methods in the discussion. Paying by credit card, for example, allows you to pay the supplier on time, while giving your business a 55-day interest-free grace period before the funds are due.
By agreeing to credit-card payments, your business can hold onto cash for longer, and earn points that can be used to pay for fuel and retail purchases.
Adopt a flexible approach
The business environment in South Africa is in a constant state of flux. Businesses that survive the effects of inflation, interest-rate volatility and trade tariffs are agile and flexible – and flexibility is required when negotiating or renegotiating payment terms.
New suppliers require a different approach to existing clients. The emphasis should be on agreeing to clear payment schedules, with the final tranche payable on delivery to mitigate risk.
As trust builds in the relationship, payment terms can be adjusted to satisfy the requirements of both parties. A flexible approach sets the groundwork for future negotiations, and makes it easier to address changes if and when the need arises.
Pay suppliers on time: get purchase order funding from BizFunding
BizFunding offers fast purchase order funding for start-ups and small businesses in South Africa. Working capital is available within 72 hours, enabling businesses to pay suppliers according to agreed terms.
We facilitate financing of up to R2 million against existing purchase orders, and partner businesses in the execution of projects.
Call 010 157 2499 or apply for purchase order funding online.
