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

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business News

JPMorgan Shuts Down Internal Message Board Comments After Employees React to Return-to-Office Mandate

Employees were given the option to leave comments about the RTO mandate with their first and last names on display — and they did not hold back.

Innovation

4 Ways Market Leaders Use Innovation to Foster Business Growth

Forward-thinkers constantly strive to diversify and streamline their products and services, turning novelties into commodities desired by many.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Business News

The FTC Is Readying a Case Against the Largest U.S. Apartment Landlord. Here's Why.

The issue is with fees that allegedly weren't disclosed in advertisements for rental units.

Franchise

Turn Your Passion for Pets into a Business with a Wag N' Wash Franchise

Wag N' Wash is a store where pets can be cherished every day by feeding, washing, and spoiling them just how they like it.

Business Culture

What Every Business Leader Can Learn From Dutch Bros' People-First Culture

The coffee chain is turning employees into owners of the customer experience.