The GroFin guide for entrepreneurs: How to manage your suppliers effectively

Managing payments to your suppliers could easily be the biggest worry you face while running your growing business, especially if the supplier has more bargaining power than you do. And, higher bargaining power on the part of your suppliers is an eminently possible scenario when yours is a small business that is just beginning to spread its wings, while your suppliers are established business houses that have been dealing with the cut-throat corporate world for many years.

Another important aspect of account payables management is to manage your relationship with your suppliers in an optimal manner. Considering that stock is the life blood of any business, any path that causes your relationship with your suppliers to take a hit is clearly not to be pursued.

It is seen only too often that companies react to a temporary cash crunch by asking their accounts payables department to stretch payments to their suppliers, considering that payments to ‘inflexible’ creditors such as the bank and taxation authorities are regarded as sacrosanct. However, this “solution” can prove to be costly in the long run, by causing your suppliers to tighten your credit period, or to cease giving credit to you altogether.

How then, can you manage payments to your suppliers in a manner that ensures that you enjoy the grace of the full credit period provided by them, while at the same time avoiding costly penalties by inadvertently missing out on paying your bills in a timely manner.

At GroFin, we have 16 years of experience in helping entrepreneurs to manage their payments effectively, across businesses of different sizes and hailing from diverse sectors. As part of our business support function, we counsel entrepreneurs on how to find the balance between meeting their payments on time, while still managing to keep cash in their business for as long as possible.

Here are 8 steps to follow, to ensure that you can manage your suppliers more effectively:


  1. Select reliable suppliers and review their performance:
    Selecting the right suppliers is important, as uninterrupted supply of stock is integral to the operations of your business. Take time to research and identify reliable and competitively priced suppliers, since this is an investment in the core operations of your enterprise. Your own competitive edge in terms of product pricing and distribution will be determined by the cost-effectiveness and timeliness of your suppliers, so make sure you identify the right suppliers at the outset. Also, when you have time, ensure that you review your suppliers’ performance. Look into pricing, timeliness of delivery, discounts extended and credit period provided so you can be sure that you are getting the best deal at all times. Enquire into new product innovations and fresh deals, especially when end-of-season or festive sales are likely to be due.
  1. Ensure a clear and consistent payment policy:
    You will want the supplier to agree to your payment terms, so make sure that these are realistic and will likely be acceptable to the party negotiating across the table. Also, be sure to keep an open mind. If your supplier has his own payment terms that are in conflict with yours, you would both need to relook your respective agreements and arrive at a written agreement that is acceptable to both parties. Always do your homework and be aware of the general payment terms prevailing in your industry. If, for instance, 30 days credit is the norm, make sure that your supplier is aware of it, and is extending the same to your business under a clear and concise written agreement. Without clear agreements in writing, misunderstandings can develop as your expectations fail to match those of the supplier. Bottom-line: Ink important supply agreements at the outset.



  1. Maintain robust records:
    Keep track of your account payables with robust records to make sure that you are meeting all your bills payables in a timely manner, and taking advantage of relevant discounts for prompt repayments. Maintain an ageing schedule for your account payables and review it regularly to ensure that you do not have to pay costly penalties for missing out on payment deadlines. Also, a missed payment is not merely about added interest payments, but also adversely impacts your relationship with your supplier as your creditworthiness takes a dip. To keep tabs on your accounts payables, match all supplier invoices with purchase orders and goods received notes.
  1. Tie prompt payments with relevant rewards:
    As a small business owner, we understand that you may come under undue pressure from big suppliers. However, stick to the written agreements and make payments only within the documented credit periods. Do not yield to pressure to make prompt payments unless accompanied by relevant rewards in the form of discounts. Considering it is your hard-earned money, do not part with it in advance and forego interest on funds lying in the bank, unless the suppliers makes it worth your while with attractive discounts. Also, check out supplier deals. Some of your suppliers might want a larger piece of your business and will flood you with special deals and discounts. Avail such special offers and promotions as and when you can. However, avoid the temptation of buying more in bulk, simply in order to avail a significant discount. Stock lying at your warehouse can ultimately cost you more than the savings that you accrue by buying in bulk over a special deal.
  1. Track demand and inventory:
    Track information on sales, orders and market trends on a real-time basis, so that you can make changes in stock ordered accordingly. This, coupled with accurate information on stock, will allow you to ensure that your stock moves fast and converts to cash, in turn enabling you to pay your suppliers in a timely manner. Reverse engineering your stock requirements from the market demand and potential orders could save you from the pitfalls of stocking items that are no longer in fashion and take up unnecessary space in the warehouse. Next, inventory control that allows you to have the right stock in the right place at the right time, will ensure you accurately assess and meet your stock requirements to turnaround your stock as fast as possible. Paying your suppliers in time is possible only if your stock converts to cash within the forecasted operating cycle.



  1. Improve supplier payment systems:
    Follow a simple rule of thumb while paying your suppliers – either extend the period of credit by paying over an instrument such as a credit card unless the supplier charges extra fees for it, or, stretch payments to your supplier till the last day by using efficient electronic mechanisms such as Electronic Fund Transfer (EFT) so that you can earn interest on your funds in the bank till the payment’s due date. Also, do not come under pressure to pay your bills early, unless you are accruing significant savings from early payment discounts. Remember to be reasonable though and do not jeopardise your relationship with your supplier by unnecessarily delaying a payment till the last minute. In this context, regular communication with the supplier is key to keep him in the loop and to not keep him guessing about when to expect the scheduled payment from your end.
  1. Keep communication channels open:
    To maintain good relations with suppliers, it is critical to keep communication channels open. Identify critical creditors and get in touch with the people who are managing your account. Establish a people to people connect so they know you as a name and not just an account number. Also, never put a supplier relationship at risk by waiting till the last minute to inform them in case of payment delays. Let them know in advance in case of issues with meeting payment deadlines. They are more likely to agree to a stretched repayment or settlement schedule in case you give them ample time for discussion and negotiation rather than leaving such communication till the last minute.
  1. Match your payments with your receipts:
    In managing the end-to-end working capital cycle, comprising accounts payables on one hand and account receivables on the other, it is critical to align the payments of your business with its receipts as far as possible. For instance, if your suppliers extend you 60 days’ credit, and your stock takes 30 days to process and prepare for onward sales, try to keep the debtor days as close to 30 days as you can negotiate with your customers, so that the stock funds itself. At the heart of a sound working capital cycle is alignment between the account payables and account receivables of your business.

When it comes to suppliers, GroFin can provide your business with the accounts payable solution you are looking for. Take the case of Jordan-based Al Masiyah, an adhesive tape production company, where the company was witnessing an influx of new clients who were demanding large quantities of tape and printed adhesive tape.

“However, we were facing issues as the skewed working capital cycle was creating shortage of the very cash that was needed to purchase raw material to satisfy new orders,” says Fathi Saleh, the founder owner of the business.

Considering the high debtor days in excess of 100, and low credit period from suppliers below a week, it was clear that the business needed to manage both its accounts receivables more efficiently as well as expand its supplier network to avail more favourable credit terms.


“We stepped in with business support in the form of connecting the entrepreneur with vendors from the local market as well as others through the GroFin network,” says Ziad Halawani, Investment Manager at GroFin Jordan.

Besides, GroFin also provided a solution to improve the collections policy of the company, concerning providing discounts to clients who pay in cash, and visiting the most important clients to negotiate better collections in person.

Throughout our relationship with you, from the pre-finance stage to the post-finance stage, GroFin will provide your business with appropriate business support designed to meet its growth needs. To date, over 8,000 entrepreneurs have benefited from our business support expertise. You could be one of them!

Apply today and get the GroFin advantage on your side.