There are different reasons a business might want to renegotiate contracts and terms with key suppliers and vendors. One of the biggest and most relevant reasons is to cut costs. There are times when an organization might be looking to cut costs across the board, or they might feel it’s time a supplier lower their costs for whatever reason. It’s important for any business to be able to remain profitable, and a big part of that relies on getting the best prices from vendors.
A business should always be reviewing the prices that they’re paying as well as market conditions. They should consistently have an eye out for trends that could encourage lower prices at the macro level, as well as the micro level.
So what should businesses know, if they feel it’s time to renegotiate with a key supplier?
Check the Data
Having automated AP and invoice processing technology is an important component of negotiating with suppliers and vendors. If you can’t see what you’re spending, what your payment terms are, and what kind of customer you are, you’re not going to have much of a foundation to go into negotiations.
Having a centralized place where you can view invoices, and spending patterns is one of the essential things you can have for supplier negotiations. You can have an accurate, real-time view of the level of business you’re doing with a vendor, and why you might be a valuable customer to them. Your negotiations will be based on data and the facts.
Plus, if you’re using automated invoice processing you’re less likely to submit late payments, so you’re probably already going to be on better footing with your suppliers overall. You’re not going to be missing payments, and you’re generally going to be the kind of good quality customer your suppliers are going to do everything possible to keep working with.
If you’re wondering when it’s an appropriate time to try and go into negotiations with vendors, a good rule of thumb is to do it annually. It’s not recommended that businesses enter into contracts that are longer than a year at a time for this reason. Multiple-year contracts can seem initially like they’re lowering costs, but that’s often not the case.
When you only agree to year-long contracts at a time, you have the option for yearly bidding and renewal conversations, which are good for improving your terms.
Be Clear and Specific with Your Reasons
When you want to renegotiate with your supplier, you need to be specific on what it is you’re hoping to get, and the logical, provable reasons you think it’s something that should be agreed on.
You want to be able to show that without a renegotiation you may be forced to find someone else to work with, but without putting it threateningly. You need to show why what you’re proposing could be beneficial to the supplier as well as to you. For example, it will give them the opportunity to secure your long-term business.
You might want to shop around a bit and get quotes from other suppliers as well. If you’re asking for something radically different than what any other similar suppliers say they can provide, then you’re probably not going to get what you want from your current supplier. As well as looking at other suppliers, bring raw material data into the conversation as well. You want to be able to show what true market value is, and why it plays a role in your negotiations.
You may find during this time that you are better off going with a different vendor, even if you’ve been working with your current partner for years. Don’t be afraid to make a change if it’s the right decision.
While renegotiating contracts with vendors should be an important part of keeping costs under control in business, data, numbers, and facts should always back it. If you go to your suppliers and you want to negotiate terms because you want to take advantage of them, or you’ve found yourself in a financial hole, it’s not likely to be a good experience. Your suppliers have to think about their own margins, and by inappropriately trying to renegotiation, you could ruin a good relationship.
Suppliers are out to be profitable just like you, so any renegotiations should be strategic and reasonable. Renegotiations shouldn’t be a cure for some other level of financial problem a business may be having, and they should be strategic for everyone involved.