Negotiations with suppliers is one of the best ways to reduce business costs and increase profits. Favourable contracts with your suppliers can provide an edge over your e-commerce competitors.
Negotiations with e-commerce suppliers is not always about bargaining on price. You can also negotiate for your supplier to support your product delivery, quality control, competitor tracking, and customer satisfaction. Knowing how to engage your suppliers can unlock your e-commerce business potential, even in competitive markets. Here are five ways to Negotiate with suppliers to boost your e-commerce business.
Negotiate Payment Terms
Paying full price upfront can hurt your cash flow. Nonetheless, bargaining for partial payments can be a delicate process. You may have to establish trust and make repeated attempts. A negotiation class can hone your skills and boost the relationship-building process. Some invoicing and payment terms to consider are:
Terms of Sale
Discuss terms such as shipping agreements, who handles taxes and duties, payment methods, penalties for late payments, and incentives for early payments.
Payments in Advance (PIA)
Negotiating for a lower PIA leaves your business with more cash flow for operations. If your supplier demands a 60% down payment, bargaining down to 45% increases your cash.
Net 7, 30, 60, 90
Net 7 means your payment is due seven days after the invoice date. For better cash flow, aim for the highest possible term.
Line of Credit
Suppliers may agree to monthly or quarterly payments. The closer your relationship with your supplier, the more likely the supplier will agree to line-of-credit pay.
Reduce Supplier Risks
Paying upfront reduces risks for your supplier. Upfront payment makes for easier management of the supplier’s accounts receivable while boosting their cash flow.
Paying full price upfront may be undesirable for your cash flow. Yet, an upfront payment may earn you a higher discount. Early payment discounts tend to have a high interest rate.
For example, say your supplier offers you a 2% discount if you pay in seven days rather than 30 days. You will receive 2% interest now rather than hold your money for 30 days. The discount equates to an annualized interest of over 36%. For such a high return, an early payment may be worth consideration.
Increase Supplier Opportunities
In negotiation classes, merchants learn to construct win-win proposals. For example, if you can create new markets for your supplier, you can win better trade terms. For instance, you can introduce other e-commerce merchants to your supplier.
Buying in bulk can also tip the trade balance in your favour. For example, imagine an e-commerce merchant selling massage oils gains a high-volume client operating a luxury spa chain. A 250% increase in the merchant’s purchases would provide leverage to negotiate higher discounts with the massage oil supplier.
Use the Competition
For most e-commerce niches, there are likely many suppliers offering similar products. Contact your supplier’s competitors to get different quotes.
During negotiations, compare the different quotes if the competition’s terms are more favourable. The comparisons may encourage your supplier to make a more competitive offer. You can find and research competing suppliers through:
- Search engine queries
- Wholesale sites such as Alibaba
- Brick-and-mortar suppliers
- Chambers of commerce
- Trade publications
- Online forums
- Your past and present suppliers
Negotiate Non-Price Items
Some non-price terms can greatly impact your profits and customer satisfaction. Consider discussing the following conditions:
Support
Negotiate with your suppliers to provide support for your customers. Support may include maintenance, warranties, customer care, and after-sales services.
Deliveries
The timing of deliveries may affect customer satisfaction. Frequent and timely deliveries may:
- Reduce your inventory costs.
- Reduce customer waiting times.
- Improve inventory turnovers.
- Enhance quality retention.
Trade Outs
What if you could persuade your supplier to send you promotional samples? Say if you received 10 free samples from your order of 500 units. If each sample costs $20, the trade-out could translate to an extra $200 discount.
Successful Negotiations with E-Commerce Suppliers
As an e-commerce merchant, your trade terms with suppliers are crucial to your profit margins. Negotiation classes can boost your contract negotiation skills. Consider what your suppliers need for effective negotiations, and use the information to propose a win-win agreement.
For instance, paying upfront reduces supplier risks while affording you a higher discount. Don’t forget to consider non-price trade terms. Aspects like customer support may increase customer satisfaction and earn more business.
