A strong relationship with your suppliers can be a powerful source of savings. Even small discounts will stack up, meaning a significant boost to the bottom line over the course of the year.
So how can you upskill your supplier negotiations and get the most bang for your buck?
Below we outline some simple strategies to use in your next transaction.
Suppliers want to be paid, and they want to be paid fast. So much so that they will often offer what are called ‘early payment discounts.’
An early payment discount (also referred to as prompt payment discount or cash discount) incentivises early settling of an invoice by offering a small percentage discount. For larger invoices, builders can negotiate higher early payment discounts, but need to consider whether their cash flow can account for this.
Using multiple suppliers is an age-old tactic for keeping vendors on their toes and attracting discount offers. If each know they’re in direct competition, they may be willing to attract winning your business by offering discounts, like for early payment.
However, developing a strong relationship with a trusted supplier is another avenue towards securing discounted prices. Pitting multiple suppliers against each other may be a financial win in the short term, but rewarding reliable and cost-efficient vendors can be a fruitful long term strategy. Furthermore, the promise of repeat business can leverage to negotiate a lower price.
Another simple way to entice a discount is to alleviate business inefficiencies or frustrations on their end. Knowing the mechanics of their supply, even how they will be delivering the materials to your site, puts you in a position to save them time and attract concessions.
If you’re buying materials that are new to the market, don’t be afraid to ask for what Nina Patel of Remodeling calls a ‘guinea pig discount’.
“A new product involves a learning curve for your crew that adds time to the schedule, so it’s a good time to ask the supplier or even the manufacturer for a discount,” she says.
“In exchange, offer to let them use your project to promote the product by inviting other local contractors to the site.”
Giving the supplier the opportunity to gain something more than just your business (like promotion of a new product, or a referral) can be enough to incentivise a discounted price.
When negotiating with a supplier, remember that it’s you who makes a decision whether or not to do business. If your supplier has been unreliable, caused project delays or even budget overruns, consider cutting ties or at the very least, negotiating cheaper rates.
A good relationship with a supplier allows you to maintain inventory, access newly developed products and negotiate deals with confidence.
However, supplier disputes aren’t uncommon, and can threaten project timelines if they drag out. Keeping contractual documentation and records of conversations is recommended if the situation escalates.
Sending a formal letter of complaint and contacting a dispute mediation authority are final steps in the resolution process.
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