Negotiating With Suppliers – Get Your Money’s Worth
When it comes to relationships with vendors and suppliers, smart negotiations will always win out at the end of the day. As a constructional professional, you will always have a wide range of procurement and materials providers jumping in at different price points, offering varied delivery terms and pay windows. It is up to you to profile, select, and manage your vendors properly to regulate your cost structure – but did you know you could negotiate with them and even involve them in your bid process to streamline your operations? In this short post, we’ll explore some strategies to employ with vendors and suppliers that will reshape your materials and equipment acquisition practices.
The Early Bird Gets the Worm
Many construction professionals don’t know the lay of the land when it comes to early payments and volume discounts. Vendors and materials providers usually give a 30-day window in which you have to pay your invoice depending on the terms and credit status of your account. You can save a huge amount of amount in a given year by negotiating for early pay discounted invoices from your suppliers and vendors. It’s a win-win scenario all around; the supplier gets their monies earlier, you get a discount and the materials are delivered to you faster. You both build a synergistic relationship for the better the evolves and grows as time goes on.
If your operation deals in volume and you are cash solvent, you can smoothly negotiate for higher discounted rates on early-payment large orders. Averages across the board show that if you can reduce your payment term to 5-10 days, you can reduce about 10% of the total cost – meaning you can motivate the supplier to move product and receive payment at a much faster rate. While this does sound enticing, it does require some financial management skills to align cash flow projections with vendor and supplier discounts in a construction business.
Let Your Suppliers Work For You
Once you have built trusted relationships with suppliers, vendors, and procurement experts (early payments always help), you can leverage your relationship to help you with the bid process within your own organization. Suppliers and vendors always have insider information and valuable feedback on new, divergent products, equipment, and solutions than can change the game for your clients. These trusted advisors can act as a useful arm of your operation, adding elements to the planning conversation like materials submittals, technical or shop drawings, and inventory management procedures. Vendors and materials experts also can join your team at site visits and strategy meetings to join in the discussion, making your firm look competent and multi-faceted.
At the end of the day, supply professionals work to support your business. If you can’t negotiate payment rates or terms with them and you’re experiencing materials delays…the best option (despite being aggressive) is to replace them. Obviously it’s important to conduct regular progress update meetings with your vendors to ensure there’s communication and feedback surrounding your relationship and goals. However, there’s a whole host of materials procurement and acquisition providers out there – if you’re not getting somewhere with your current connections, make a switch for the better.
The Devil is in the Details
When it comes to the little things about your business, it pays to have the experts looking at the details – this principle extends to your accountant as well. Don’t just hire any old accountant to manage your books. Hire a construction accountant, one that is extremely knowledgeable about the different tax codes, write offs, and depreciation tricks to improve your finances and foster efficiency to create a strong financial backbone for your company. Thanks to our digital world, there’s plenty of construction management software products that plug into your financial systems, which oversee and prioritize things like invoices and pay windows to foster good relationships with suppliers and vendors. Despite the simplicity of these programs, the value of a live financial professional is unprecedented when it comes to negotiating and maintaining healthy business relationships with your suppliers.
Another piece of the puzzle to examine is your surety bond, which is required for construction professionals. If you choose to pursue early-pay discounts and accelerated payment windows, you have to work with your bonding agent to properly facilitate the payment process. Typically, aggressive payment plans on the supplier end will either increase your surety bond amount or push surety agencies to look at your firm in a favorable light. This piece combined with a strong balance sheet and financials could actually help you obtain a lower bonding rate that saves you money in the long run.
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