Relationships with vendors or suppliers are a crucial yet frequently overlooked element of success for various industries. Notable examples range from retail to restaurants to medicine to auto repair. It’s safe to say that when giants of these industries boast their incomparable “experience” or “knowledge,” they are usually referencing their ability to secure game-changing partnerships. They know that establishing trust and a reciprocal relationship with the companies they buy materials from is a mandatory requirement for growth.
But to make this happen, your vendors must genuinely want to help your business. The revenue you provide cannot be their sole motivation for working with you. And you won’t secure the partnership if you do not communicate these additional benefits right away.
In this guide, we’ll answer the following questions regarding new vendor partnerships:
- Should I Give Potential Vendors Trial Runs?
- How Often Should I Communicate with Vendors?
- Which Payment Frequency Do Vendors Prefer?
- Do I Have to Make Compromises to Sign New Vendors?
- Are Vendor Management Systems Worth It?
Should I Give Potential Vendors Trial Runs?
Many successful businesses began their partnerships with their closest vendors through a trial run. The industry standard might have been to develop contracts before doing business, but they wanted to prove that money wasn’t their chief concern and show how confident they were in their skills. With no terms or fees to worry about, the potential vendors were less skeptical and, therefore, more willing to open up about their wants and needs. The downside is that it might be difficult to get your team motivated when they aren’t being paid accordingly, and if they make one small mistake, all of their work will have been for naught.
But all the stress from the trial period might be worth having no stress when the time comes to figure out contractual terms because the vendor already knows you are reliable. And it’s a lot easier to grow a partnership when you don’t have to question whether or not you are being ripped off. Even companies that don’t use vendors have had positive experiences with trial runs. For example, a marketing agency might begin courtship by showing the potential partner everything their current marketing team is doing wrong, completely free of charge. The potential partner sees the agency’s dedication while becoming more educated about what goes into an effective marketing campaign.
How Often Should I Communicate with Vendors?
You may have noticed retailers stepping up their email marketing and social media games as of late. Do they think you’re going to take advantage of every promotional offer they throw at you? Of course not. They want you to know they haven’t forgotten about you.
Social media is also a great tool for obtaining valuable data. Many companies use their accounts to ask their customers about industry-related preferences or how they feel about their latest releases. Regardless of what kind of feedback they get, the customer understands that their insight truly matters.
Both strategies can be just as effective in strengthening relationships with vendors. For example, larger vendors are experts about your industry and can tell you which strategies they’ve seen succeed and fail. How many months ahead of the busy season should you place your order? Are bulk discounts worth it? It’s a lot easier to trust a new partner when you get the impression that your opinion plays a role in their decisions.
Smaller businesses have the advantage of being able to offer regular communication and customer service. They can talk to their clients every week to update them on performance metrics and potential future strategies. Vendors who know their partner listen to them and are truthful are ultimately much more likely to agree to new terms and follow through on their promises.
Which Payment Frequency do Vendors Prefer?
Without a steady stream of payments, your vendors cannot run their businesses. This is why vendors are often extremely appreciative of clients who can pay them ahead of the scheduled due date. A great example is a relationship between an all-organic restaurant and the farmers who raise and grow their ingredients. The restaurant must pay the farmer on time so the ingredients can be ready on time. All-natural ingredients are also expensive and will only get cheaper if the farmers’ partners regularly make deposits.
Even paying vendors just one or two weeks ahead of schedule could be hugely beneficial for their cash flow. Companies that assign 30 or 60-day terms often receive most of their payments at the end of the month. This makes the sale less profitable because their operational bills are likely due at this time as well. Thus, the vendor has hardly any time to plug money back into their business.
Do I Have to Make Compromises to Sign New Vendors?
When discussing the terms of a potential partnership, vendors want to hear that you are realistic. In other words, they want to get the impression that you understand how any business partnership works. There’s no such thing as an equally beneficial partnership, at least in the early stages. It would be best if you prepared for the highly likely scenario that your new partner won’t be able to satisfy every term you request. Odds are, you’ll have to give just a little bit more. This will set you up to eventually earn the terms you originally wanted.
The key is to think of a sacrifice that will also benefit your business in some way. For example, you could offer to take responsibility for monitoring the orders with your own project management tool. Though this is technically an additional task, it also comes with numerous benefits. You would gain an insight into the vendor’s productivity rate as well as another channel for communication. In other words, you’d be in charge of managing the account, but at least you’d be managing it your way.
Are Vendor Management Systems Worth It?
Nurturing relationships with vendors becomes more difficult as you take on more and more of them. You can’t possibly remember which reminder to send which vendor on which day of the week on your own. And wouldn’t it be amazing if you could handle all of these tasks from one place?
This is why vendor management systems were invented. In addition to sending reminders and monitoring progress, most vendor management systems allow you to invite RFPs (Requests for Proposal) and provide tools to evaluate the sender. You might find everything you need in the myriad of free options since the paid platforms are typically reserved for larger businesses. Either way, vendor management systems are becoming increasingly vital due to the aforementioned importance of communication.
Final Thoughts: Strive for Long-Term Partnerships
This last tip applies to virtually all types of business partnerships. When courting potential vendors, make it clear to them that you plan on working with them for several years at the least. Long-term partnerships are advantageous for both parties. Nobody wants to disrupt their own operations by moving from partner-to-partner. Strings of short-term partnerships would damage your reputation, even if the other company were to blame.
Also, the promise of a long-term partnership might give you leverage for negotiating lower prices. Your competitors are likely hesitant to make promises they can’t keep and, therefore, won’t take this risk, even if it benefits them financially.
How can you lessen this risk? By laying out your policies and preferences from the get-go and acknowledging potential red flags before they ruin the partnership. Companies make mistakes (i.e., missing payments, sending orders too early, poor planning). But if you get to know the vendor early on, you’ll be able to tell if this is a partnership worth preserving. If so, fixing that mistake the second it arises will likely be less stressful than ending the partnership.