Anticipating Cash Flow on a Large Contract

Does your company play offense or defense, when managing cash?  Cash flow management is always best when played offensively, rather than defensively.  If there is a project on the horizon that is larger than normal and will stretch a credit line, calling vendors ahead of time to request credit limit increases or terms extensions is vital.

Over the last eighteen years, Setpoint has developed a great working relationship with their vendors.  This has paid off more than once.  Because we pay our bills consistently on time and/or take discounts, we have been told by most of our vendors that we are one of their preferred customers. If you have not been paying your bills on time, or you consistently drag them out – quit reading right now, you won’t have a chance. Occasionally when we have needed a little flexibility in our payment terms they take our calls and work hard to get us the help we need.  When we go to the vendors with a request, without a doubt every one of them have said “Yes”.  Sometimes vendors can’t provide the terms we requested, but they come back with something that we both can work with to help us during our crunch time. This can only be done if you are playing offense and know well in advance that you need the help. Calling when you are already 60 days overdue on your bills will not get you very far in negotiations.

These calls can be a difficult thing to make.  Here is where the old adage applies, “if you don’t ask, you don’t get”.  There are a few questions that need to be asked before calling on the aid of the vendors.  For instance:

  • Do we pay our bills on-time?
  • Do we award PO’s to the lowest bid?  Or do we use a variety of matrices for awarding PO’s?
  • Do we have someone who can communicate well with our vendor’s credit department?
  • Can we articulate the reasons for the extension?
  • Are we willing to pay a finance charge to vendors, if needed?
  • Do we ask the same thing from all vendors?

If you can answer positively to these bullets, you are prepared to go to the next step.  Some other questions you should consider are:

  • Is it a temporary or permanent change?
  • How often do we ask them for changes in terms?
  • Can we afford to order from vendors who can’t or won’t extend terms?

Who do you call?  No, not Ghostbusters.  Who makes the calls?  It is good to have both the purchasing and the finance department make the calls.  Purchasing can start the dialogue with the sales department, while the finance department can contact the vendor credit department.  Generally, the credit department will request information from their sales force to check on the customer’s stability and contract viability.

Any coach will tell you that their offensive team is the most important part of the team.  In business this means that understanding your cash flow needs well in advance – will keep you out of trouble. Ask yourself this, are you ready to play offense?

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