Money management

How negotiating payment terms can help increase your cash flow

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A lot of small business owners are hesitant to request more favorable payment terms with vendors, but a small negotiation could make a big difference for cash flow management. This is particularly true for businesses that offer their clients net-term invoicing. That can create a cash flow problem because bills may become due before the revenue from those invoices arrives. Negotiating payment terms on the bills can provide some relief for that.     

What is cash flow management?

Cash flow management is the process of tracking and controlling the cash inflows and outflows of a business. It’s closely tied to business budgeting because the timing on cash flow can dictate whether a budget will work. A cash flow manager’s main job is to make sure there’s always enough cash in the bank to cover bills and expenses.

Cash flow challenges for small businesses

We’ve already covered the problem of waiting for revenue while bills are coming in. This isn’t always due to poor planning or late payments. Businesses across industries are currently dealing with supply chain issues that are causing shipping delays for materials and inventory. That affects sales and revenue, but fixed costs still need to get covered, which presents a cash flow challenge.  

Another cash flow challenge is rising prices. Inflation hit a 40-year high in June 2022 with a 9.1% year-over-year increase in the Consumer Price Index (CPI). This increase caused business overhead to go up. Rents, utility payments, office supplies, and fuel costs are all significantly higher in 2022 than they were in previous years. Cash flow managers need to account for that.

Why negotiate better payment terms with your vendors?

Vendors are unlikely to lower their prices because they’re experiencing the same cost challenges your company is dealing with. However, they might be willing to negotiate the payment terms of your agreement. Call them up and ask for net-30 or net-60 terms on outstanding invoices. Explain how that would better suit your accounts receivable schedule.

Delaying outgoing payments increases present-day cash flow. Your company will still owe the money, but that extra time allows for more revenue to come in before the bill becomes due. Having more working cash on hand in the meantime helps your business meet other obligations or expand inventory to increase revenue for the next cycle.     

How to negotiate payment terms with suppliers

Most vendors prefer negotiation over lost or late payments, but that may not be an option if you call them after you’re already late on your payments. The best approach is to be proactive when it looks like your incoming cash flow won’t be enough to pay bills and expenses. If that’s the case, make a list of all your obligations, then go through the following steps for each of them.   

1. Organize your thoughts

Each situation is different. A credit card company may not be willing to change your due date, but they might lower the interest rate. Vendors that are offering 10-day terms might be willing to offer net-30. Review each bill and make notes on what you’d like to accomplish with your negotiation. Organize the invoices by due date, putting the most pressing on top.

2. Make the first move

Never wait for the vendor to contact you. That puts you in a position of weakness in the negotiation. Make the first move. Reach out, find out who is authorized to negotiate vendor contracts, and be aggressive about getting that person on the phone. Once connected, be direct. They get calls like this all the time, so state your intentions up front.

3. Offer something in return

You can try asking for better terms without offering something in return, but it helps to give a little when you negotiate. An example of this would be increasing your monthly order by 10% in return for net-30 payment terms. Just make sure you can consume or sell the higher quantity. Whatever you do, don’t offer to pay more per unit. That will create cash flow problems later.   

4. Ask for more than you need

Aim high. If your goal is to get net-30 terms, ask for net-60. They might just give it to you. If not, you can “settle” for net-30, which is what you wanted in the first place. They’ll know it, you’ll know it––everyone goes home happy. That’s how negotiating works. Don’t be afraid to engage with enthusiasm. Most contract negotiators enjoy the game.    

Pay business bills by credit card to increase cash flow

Some bill pay platforms give you the option to make payments with your business credit card. This allows you to enjoy added flexibility with your cash flow. It also extends the amount of time you’ll have to pay off the balance owed, depending on your credit card terms.

Other cash flow management strategies

Negotiating with vendors and paying bills with a business credit card are two excellent ways to manage your cash flow. Another is to create a strategic bill paying plan. This involves organizing your due dates so that bill payments go out on time, but not early. That can help increase your available cash flow. You could also apply for a business line of credit or even a small business loan to give you more available cash on hand when you need it. 

Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.

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Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.