Once in a while, a purchasing department decides to get clever and extend payment terms. You can pull this stunt about once with each supplier. For when they figure it out, your prices are going up. Your suppliers and their competitors do not have to collude to raise your prices, they all instinctively know that if you are doing this to everyone, all your suppliers are going to pay you back in kind.
I was a tiny, but vital supplier on a large long-term contract with a gigantic company a few years ago. They were in trouble throughout their divisions, everyone knew it, because they were big enough to make the national news, along with all their problems. Their purchasing department kept extending terms--got them all the way out to 120 days--a third of a year!
Then they had the gall to write their suppliers a letter that went something like this: "Good news, we are now offering as low as 30 day terms, all you have to do is agree to a 1% discount for every 15 days you want to reduce terms from 120 days." I raised Cain and threatened to quit. I got back to thirty days because I called their bluff and they needed me at the time.
Suppliers figure these things out and if you start getting cute on terms, they will find ways to get back at you. However, consider going the other way with highly valued suppliers.
First, though, this involves education like we talked about last week. Talk to your users of services within the mill and ask them to name the suppliers they really need to be on top of mill conditions. Then, pay those within 15 days or less. Your supplier will notice, and you'll have the best services available in that category. Do this for all the key areas.
I have a client right now that pays in eight or less days, and each invoice is a substantial sum, at least to me. Do you think their numbers are in my cell phone with their own distinctive ring? Of course, they are. I'll jump through hoops for them. They have treated me this way for a long time, and I reciprocate. They are important to me.
On the other hand, if you treat a supplier poorly, do you think they are going to answer the phone on Saturday night when they are the only one who has the bearing you need to get the machine up and running again? Maybe, maybe not.
Playing with payment terms is an area where I have seen many purchasing agents attempt to look good and curry internal favor over the years. They usually just end up looking foolish.
All suppliers are not desperate for your business at any cost, in fact, the good ones expect you to treat them with respect and on equal footing. What you are doing when you don't treat suppliers with respect is assuring that your supplier posse is the worst of the lot, all the way around. Only the poorest will tolerate abuse. This is not good for your company.
For safety this week, valued suppliers will throw in little goodies--sort of a swag bag. We are not talking corruption style items here, we are talking things like PPE and other materials to make your people safe. They will do this because they want to make sure you run without incident and they are just doing their part to assure this happens.
Be safe and we will talk next week.
