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Good practices for sound supplier management

Even with a brilliant idea, seasoned managers, talented employees and a revolutionary concept, without suppliers a company is like a dream car with no gas in its tank—worthy of interest but unable to reach its full potential.

What is supplier management?

Supplier management refers to all the actions undertaken by company personnel to maintain optimal business relationships with suppliers while effectively managing operations and cash flow.

Notice that the definition above doesn't only include financial management, but the human aspect of supplier relationships as well. With effective management, you can develop win-win relationships with suppliers.

Understanding the influence of suppliers on company activities

The influence of suppliers on company activities goes above and beyond financial considerations. Suppliers play the important role of providing you with the all resources (raw materials, tangible assets) and services (professional services, subcontracting services, etc.) that are fundamental to your business. Imagine, for example, the repercussions on a musical instrument retailer if the supplier of the most popular guitars on the market decided to stop selling him product. He could certainly find another guitar supplier, but would the new guitars be as attractive and sough-after by his clientele?

This example illustrates to what extent the loss of a relationship with a supplier can affect and perhaps even compromise the future of a company. To avoid this type of situation, it's important to manage supplier relationships effectively, because, as the saying goes, “Short reckonings make long friends”.

Good practices

A good accounts payable tracking system

One of the basic requirements for managing a business is quality information. For effective supplier management, your accounts payable tracking system must provide you with the following information:

  1. Payables sorted by supplier
  2. Payment due dates sorted by invoice
  3. Discount conditions
  4. Automatic reminder when deadlines are reached

In short, to avoid losing control over amounts due to suppliers, be sure to update your books on a regular basis.

Prioritizing payments

Too often, supplier invoices are paid in the order company bills are received. Even though this practice is done with good intentions, it can be a source of risk in relationships with suppliers. For example, a supplier unnecessarily paid immediately when he could have been paid later could keep other suppliers waiting. When the time comes to pay bills, it's important to consider the number of days remaining before payment is due and to prioritize bills with shorter payment deadlines.

Using the discount for faster payment

It's common practice for suppliers to offer clients a discount—usually 2%—for payments made on time. Using the discount is a great way to develop a good relationship with suppliers and gives you, the client, important advantages too.

The discount may seem minimal, but accumulated over the course of a year can represent substantial savings both in dollars and percentages. As for suppliers, they get their money faster.

Keeping books up to date and making regular payments

Sometimes entrepreneurs get so caught up in the excitement of running their business that they neglect their bookkeeping. As a result, supplier invoices stay in their envelopes and are discovered too late, when unhappy suppliers call to say their bills are past due.

To avoid unpleasant surprises, it's important to update your books on a regular basis with regards to bills. To avoid late payments, you could adopt a supplier payment policy. For example, you could decide to pay suppliers on the 10th and 20th of the month.

Using credit cards responsibly

When used responsibly, credit cards can play an important role in supplier management. Many credit cards also offer valuable rebates and cash back.

It's to the advantage of every company to push back payments to suppliers as far as possible, as long as no costs are incurred and business relationships aren't compromised. This said, circumstances can sometimes affect your cash flow and prevent you from being able to meet supplier deadlines or benefit from the discount offered for quick payment. In these circumstances, it could be to your advantage to use a business credit card to pay suppliers, to extend the payment due date out even further.

Although an interesting option, this alternative must be used cautiously because if the company doesn't have the cash on hand to pay the credit card bill on time, interest will be due on the full amount.

Using Desjardins's Billing and Expense Tracker tool for free

Use the Billing and Expense Tracker tool to simplify daily management of accounts payable and keep company books up to date:

  • Create, manage and archive bids and invoices easily.
  • Manage expense accounts to facilitate production of tax returns.
  • Use client and supplier management modules to develop your business.
  • Access information—stored in a cloud-based system—at any time and from anywhere on your mobile device, tablet or computer.

Learn more about the Desjardins Billing and Expense Tracker tool - This link will open in a new window..

Download the free Desjardins Billing and Expense Tracker app.

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