Link Magazine 19 - SCLG

70 Trade and EconomyUncover the hidden profitsCompanies can make profits from operating a flexible early settlement system.Amir Morani shows us how that can be done without using valuable cash resources.Every business operation involvesdealing with vendors who supply goodsor services to sustain the operations of thebusiness. The businesses that are tradingin goods often have to purchase theirinventory from various vendors.Businesses needs office supplies,furniture, printing services and manyother goods and services in their day-todayoperations. In dealing with thosevendors, businesses try to negotiate thebest prices and the best payment terms.Negotiating the best prices is a relativelysimple process. If you do a good researchon the prevailing prices in the market forthe goods or services that you intend tobuy, you could convince the vendor tooffer you a competitive price to you. Bypurchasing goods or services at acompetitive rate for the business you areable to bring some immediate benefits toyour business in terms of reduced costs.Of course, reduced costs also provide anopportunity to you to price your productsor services competitively to yourcustomers and increase your business.The next stage is that of negotiating betterpayment terms with the vendors. Betterterms can include many different things.One of the most obvious ones is longerterm credit from the vendor. So, youwould want the vendor to let you paytheir bills in 30 or 60 days from the dateof invoice. Such facility is a great blessingfor companies that have seasonal cashflow issues or have difficulty obtainingcredit from their financial institutions tofinance their cash flows. Just like youask for credit facility from yourvendors, your customers may alsodemand credit facilities from you.If you have a credit facility fromyour vendor that allows you 60days to pay them and you arerequired to similar or less days ofcredit to your clients, you wouldhave a little easier time in handlingAmir MoraniFinancial Controller, DAFZAIt is probably timeyou check out yourvendor payments tocheck how much moneyyou have been losing bynot negotiating acash discount withyour vendoryour vendor bills. In the followingparagraphs, I have discussed some of theways you could use your relationshipswith your vendors to increase yourprofits.Timing the delivery of inventory:If you are in trading business (buying andselling of goods) then it is extremelyimportant that you manage yourpurchasing function very efficiently. Ifyou order goods in a manner that youhave too much ordered and sitting inyour inventory you are losing precioustime and resources on your idleinventory. You must try to order in such away that the goods arrive as close aspossible to the time when you sell anddeliver it to your customers. This wayyou will have very little inventory inyour stock and your financial resourceswill not be wasted on idle inventory.Mismatching your sales andpurchase terms:If you offer 30 days credit to yourcustomers, and are able tonegotiate 60 days credit with yourvendors, you are doing great. Thisstrategy, along with the previousstrategy of managing deliveryThe Supply Chain & Logistics Group | www.sclgme.org