For a startup company
that is growing its business aggressively cash flow is always tight and
therefore prioritizing cash payments is necessary.
Most startup businesses
in their early days delay supplier payments to fund growth and meet other
critical payments. It is important to realize that if you want to delay
payments to suppliers it is very important to carry them with you. Suppliers
must feel that they have a stake in your success. With your success they will
succeed as well.
Payments to meet
monthly salary, rental, utility and communication bills have to be provided for
every month without fail. I remember many meetings with my finance head, trying
to figure out which supplier to pay and when and how to prioritize payments so
that the supplies would not suffer and the suppliers would be happy!
Each time payments
were delayed the rumor mills would start working overtime and I would start
getting feedback that our suppliers were nervous because they had heard that
the company was closing down or that I had sold off the company.
Suppliers are also
businessmen and know that delayed payments does not mean that their money was
not safe – they simply wanted a confirmation of the delayed payment so that
they could plan their own cash flows better. Once we had given them a fresh
date and if we honored the revised schedule, they would happily fund our short
term credit needs in future as well!
In order to reinforce
the confidence of our suppliers, I used to hold meetings with them in our
offices and over a cup of tea accompanied with one Samosa and one Pastry, I would
explain to them that the company was growing fast and that their payments would
be delayed for the next few weeks. Every supplier always supported us whole
heartedly throughout our journey.
On the other hand,
there were distributors of some of the big brand fast moving consumer goods
companies who would simply not accept any payment delays because they knew that
the consumer demanded their products from our stores. We needed these
distributors and suppliers more than they needed us and we made sure we never
delayed payments to them.
Whenever we delayed
payments beyond the agreed norm, and this did happen several times, a few
suppliers would stop supplies to us.
The moment we would
start ordering goods from another supplier, I would receive a complaint from
them stating that we had stopped buying from them and that their business with
us was reducing!
They did not want to
stop supplies to us! At best they would try and reduce the margin they offered
on the supplies to compensate for their funding cost. The moment payments
started regularly, the margin would be restored by our suppliers.
Suppliers
understandably want payments on time but they do not want to stop doing
business with the company. This was a clear indication to me that they trusted the
company, they trusted our business and most importantly, they trusted our
dream.
We stretched the
payments to the suppliers but we never let the relationship break. As a wise
man once said “Stretch the thread of a relationship as long as you can but
don’t let the thread break. Once the thread breaks, no matter how hard you try
to rejoin the parts, there will always be a knot in it”
The
author is the Chairman of Guardian Pharmacies and the author of the bestselling
books, The Corner Office and The Buck Stops Here. Twitter: @gargashutosh
http://www.businessinsider.in/ToBe-Successful-In-A-Business-You-Need-To-Be-Transparent-To-Your-Suppliers-/articleshow/26777573.cms
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