How to Manage Vendor Bills When You Don’t Have The Cash

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BFF Manager

Every business has been there at one time or another. You have bills piling up but customer cash isn’t coming in the door. While you’re confident that the money will show up eventually, that doesn’t do much for you in the short term.

What you could really use is a break on some of your bills. If you could put them off a month, or even a couple of weeks, then you’d have the cash you need to keep the business afloat.

manage vendor bills cash flow problems

Cash flow problems are common for businesses of all sizes. There are a number of ways to resolve these kinds of cash crunches, but one of the most effective solutions is to negotiate alternative payments with your vendors.

Many businesses hesitate to do this because they don’t know it’s an option. The truth is that it maybe your best option available. Getting an extension on a vendor payment is the equivalent of getting an interest-free loan. If you know money is coming in the door at some point, you could be better off with a vendor extension rather than tapping into a credit line or some other interest-bearing vehicle.

If you’ve never asked for a vendor payment extension before, you may be a little unsure of how to go about it. Don’t worry. It’s not as difficult as you might imagine it to be. Here are five tips to help you through the process and to get the extension you need to free up your cash flow:

Communicate early and often.

Remember that your vendor is a business owner just like you. They have their own cash flow concerns to deal with. While they will likely understand your situation, they may be less understanding if you wait until the last minute to let them know that the payment will be late.

As soon as you know there may be an issue, contact your vendor and discuss it with them. They’re business people. They’ve likely been in the same situation. The more time you give them to prepare, the more flexible they can be in negotiating payment terms. If you wait until the last minute - or until the payment is already late - they may have their own bills they need to pay and they may not have much wiggle room.

Know the marketplace.

Before you call your vendor, make sure you take an assessment of the marketplace and your relationship with the vendor. Are you calling them from a position of strength or weakness?

That might sound a little silly, since you’re essentially asking them to give you a loan. However, just because you’re asking them for help doesn’t mean that you’re necessarily in a weak position.

For example, maybe you’re one of their biggest customers and maybe you have a strong payment history. Also, maybe you have a lot of other options when it comes to the types of products and services they provide. If all of these things are true, then you shouldn’t feel weak or embarrassed about asking for an extension.

In fact, maybe you deserve better payment terms all around. Consider talking to other vendors and see what kind of terms they could offer. It a competing vendor will give you net-60, tell your current vendor you want new terms. If they value your business, they’ll likely consider it.

On the other hand, let’s suppose you’re one of the vendor’s smaller customers, you have a spotty payment record, and there aren’t too many alternatives to your current vendor. In that case, it’s probably not a good idea to threaten to take your business elsewhere. In this situation, you’re asking for a favor, so your tone should reflect that.

Give something to get something.

The best way to get is to give. That’s true in many areas of life, and vendor relations is no exception. As stated earlier, they’re in business just like you. If you want them to extend you a favor, reciprocate to the best of your ability.

What could you offer? There are a number of things. You could extend your contract with them. You could increase your regular order quantity. You could give them a partial payment now as a show of good faith. You could give them a testimonial to use in their advertising. There are countless ways that you could help.

The key is to ask. Tell them you’re willing to help them out if they can help you get through this tough period. Then ask them what you could do to help them out right now. If you reciprocate the goodwill, they’ll be more inclined to help you out right now.

Prepare to negotiate.

Keep in mind that the conversation will probably turn into a negotiation very quickly. That means you need to give yourself room to back down and meet in the middle. If you need an extra 30 days to pay, ask for an extra 60. If you want to spread your past due payments out over six months, ask to spread them out over a year.

Remember, they’re likely going to say no, or at least hesitate, before they agree to help you out. Don’t come in with your minimum acceptable outcome. Also, don’t start backing down your request before they counter. Tell them what you would like to do and wait for their response before you start compromising.

Don’t belabor the point.

If your vendor absolutely refuses to help you out, it’s probably because they’re in their own cash flow crunch. Don’t take it personally and don’t sour the relationship over it. You never know when you may need their help in the future.

If you’ve asked politely, made concessions, offered to help them, and made every effort to compromise, and the answer is still no, then it may be time to consider alternatives. Don’t keep hammering the point home with the same vendor.

You can turn to other vendors for relief or you can look into other forms of short-term financing. One option may be factoring, in which you use a third-party to collect your receivables. The factoring company advances a large portion of your receivables upfront. Then they work on collecting payment. When your customer pays, the factoring company keeps a small fee for their services and forwards the balance on to you.

Factoring is an easy way to get the cash you need quickly. If your vendors can’t give you the relief you need, factoring may be the next best alternative.

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