Negotiating credit terms with suppliers for your online store

An important and often overlooked area you must research and establish early on is any credit terms with partner businesses/suppliers who supply you with the products you sell on your ecommerce website.

Many arrangements simply consist of payment in advance. This worked well for us initially, as all orders were paid up front. We would get paid by the customer, then on pay to the supplier when we paid the order.

This worked well until we started working with Government, which would often involve 30 day terms. The Government client would require to purchase, a 30 day window for payment.

Cashflow management

Where we had to change our approach was when the orders impacted on cashflow. We were paying upfront, then getting paid 30 days later, often (initially) by cheque which at the time added another 5 days to the process! The small orders this worked fine for, but when our orders increased to $20,000 and more this was no longer a viable approach.

We needed a better solution with credit terms, in order to free up our cash while still delivering to clients via the online store in a timely manner.

30 day terms

Thirty day credit terms are common and accepted by a wide variety of suppliers, and are in line with most Government standards.

We established these agreed terms with our suppliers, thus giving us the option when we needed it to pay over a longer timeframe.

You may need to agree to a credit check, and also provide credit references. You may also not be eligible for these terms, especially if there is no past relationship with the suppliers.

Supplier financing

Some suppliers may also offer product financing too – you buy the products, you may have let’s say 30 days to pay, but beyond that you can pay on credit to extend the terms even further. For one of our suppliers this was such a popular idea that they introduced it as a new branch of their business!

Negotiate, even on an order to order basis with your supplier

We established 30 day credit terms and that was fine. What you should consider is variations that put you outside those terms which you need to be familiar with and aware.

We found that as we grew, the orders became larger and some terms being requested by Government clients extended beyond 30 days sometimes.

A good example was a particular Government client that paid 30 days after the next 1st of the month. So if it was 3rd April when the order was placed with us, they would pay on 1 June. As this fell well outside of our 30 days terms with our own supplier, we needed a much better choice. Especially on a $30,000 order!

Don’t struggle! You can ask the right questions and negotiate with your suppliers to generate the best outcomes.

In this instance, we simply picked up the phone and started a conversation with our supplier. In discussing the reasoning behind the situation, and because we already had a good relationship, we were able to negotiate the terms to be in line with the client.

You need to think outside the box for extraordinary situations

Often we’ve had demanding client situations which require a lot of discussion, liaising and negotiation to get across the line. We found sometimes with larger orders, we would also liaise directly not just with the supplier, but with the manufacturer too to do the necessary to get the deal right.

This works especially well for larger orders, as suppliers and manufacturers don’t want to miss out on lucrative deals, sometimes you just need to work as a team to get the result. One of our online stores sells specialist secure data storage devices, and the manufacturing process is longer. Often clients would call with larger orders with requirements of 7 day delivery, which literally meant to have someone on the manufacturing production line, picking up the product straight off the production line, and putting it into an international Fedex delivery box for immediate 24 hour global shipment.

This sort of thing is only possible when you put the time into getting everyone working together to generate the best outcome for the client.

Summarising your credit terms for ecommerce supplier relationships

To summarise, suppliers value high quality relationships that grow. If you invest your time in them, and grow their business too, you can establish lucrative and long lasting relationships with flexible credit terms that accommodate your end clients.

For any other tips, advice or queries, please don’t hesitate to contact us directly.