How to Convince Suppliers to Extend Payment Terms
Cash flow plays a crucial role when it comes to running a business. As long as the inflow is higher than outflow, you are in a stable financial condition. Many organisations try all the harder to have a regular flow of cash. Paying your suppliers on time is paramount to not only sustain business relations but also avoid penalties, but most of the time, it leaves you with little cash.
When you have to invest in your business projects while you are running out of money, you end up taking out a loan. It pushes more outflows. This is not a solution. In fact, a lender will add in the list of your suppliers. You should consider the extension of the payment term. Of course, your suppliers will want you to pay money on time, but it may affect your working capital. Here are the ways you can follow to convince suppliers to extend payment terms.
Analyse your situation
Before you contact each supplier, you need to figure out your position. First off, you need to examine the terms and conditions of the agreement you have with your suppliers. Review payment terms. Some will be requiring you to pay within 30 days while some will be asking you to pay within 45 days. Consider how long you have been in touch with your suppliers. Extension in payment terms is more likely to happen with those who have been associated with your business for a very long time.
Tell your situation
Once you have found whom you should request for extending payment terms, the next step is to prepare a list of reasons. Of course, your suppliers will want to see if there is a genuine situation or you are fighting shy of paying money. Make sure that you have a genuine reason. Otherwise, it may take a toll on your business relations. Honesty and transparency can go a very long way in business.
- Send in a mail explaining all reasons for blocked cash inflows from unpaid dues to a sudden fall in demand of the product.
- You will also need to tell what strategy you have been using to have enough working capital. If the situation seems temporary and suppliers trust your strategy, you may get an extension on payment terms.
If it seems difficult to pay off your debt, you should talk to your lenders if they can renew the repayment plan. Make sure that you do it quickly before it becomes overdue. Otherwise, you will be fined with late payment fees and interest penalties. This approach is suitable for both small loans and installment loans in the UK. Direct lenders may be lenient in case of installment loans if you have paid down all previous instalments on time.
Have a backup in advance
Negotiating with every supplier is impossible. Further, it is not good for the reputation of your business as some suppliers have nothing to do with your blocked working capital. Every business faces ups and downs. It is not likely that you will approach every supplier for extension of payment terms by telling your financial situation. Your suppliers may also need money. If they have been running out of money, they will never be relenting.
Since there is always a chance that your suppliers will never be ready to extend payment terms, you should have a backup plan. You need to think about the consequences in advance, and accordingly, you will prepare yourself for a response.
Use a reasonable approach
Each supplier follows a different payment term. Some allow for net-30 while some allow for net-60. Of course, the extension has to be reasonable. If your supplier wants you to pay the money within 30 days, you cannot expect them to make it double.
If you are at net-30, you should request your suppliers to out you at net-45 and then net-60. Your supplier will never consider your request if it is not reasonable. Find out what is normal in your industry. However, the volume of the order you place with your supplier may also have a great impact to get the payment term extended.
Convincing suppliers to extend the repayment term is not very easy, but it is not impossible too. You must have a genuine reason to tell them. As long as your demand is reasonable, they will not deny. Bear the aforementioned tips in your mind and go ahead.