Q: I’ve been running a double-glazing manufacturing firm for the past eight years. Turnover has plateaued at around £30m and now I am looking for ways to expand. I’d like to double spend with our main supplier but they are concerned with extending our line of credit as they fear this is risky, in light of the large chunk of revenue this represents for them. I don’t want to compromise on quality by looking to another supplier but I don’t have a cash surplus of my own, what should I do?*
A: As a small but growing business it can be frustrating to wait patiently for growth when you know you could speed it up with the right resources. I’ve seen this issue crop up again and again, particularly with rapidly expanding manufacturing firms that rely on key suppliers to help fuel further growth. If you’ve been working with your supplier for some time and you are happy with the quality of their products, then you are quite right to try and stay with them. Even though you (presumably) have a good payment history, it’s natural for the supplier to be worried as by increasing your order you are also asking them to take on the additional financial risk by extending the credit facility. You need to find a solution that works for both of you. Here are a few options:
First, you could talk to your bank manager about an unsecured loan. That would allow you to purchase more goods from your supplier without having to extend existing lines of credit.
You can also look at using a corporate card to pay your supplier. With a Corporate Card , you could take advantage of up to 58 calendar days credit to make your card payment interest free, while your supplier could receive payment in three working days. That brings advantages for both parties. If your supplier can convert their receivables into cash quicker, they can become more efficient and they could potentially be in a position to do more business with you. Critically, a card company generally guarantees undisputed payments, thereby removing your supplier’s risk concerns. Meanwhile, by having access to an additional source of funds, you get to purchase extra goods and make a better margin. And the more you spend with that supplier, the better placed you could be to negotiate improved terms. The key thing is cooperation. Supplier relationships are key in any business: make sure you treat yours with care.
Alan Gillies is vice president and head of UK sales at American Express Global Corporate Payments.
* This is an example question