I saw this article in today’s issue of Entrepreneur by Jane Porter a freelance journalist based in New York and had to share it with you. She focuses on ten questions that your small business needs to ask suppliers before signing contracts with them. The answers will prevent you from getting into difficult situations with regards to terms of payment and delivery as well as making sure that your company’s needs are satisfied.
Here is the list of questions:
1. What are the payment terms and are they negotiable?
Learn to negotiate terms with vendors. See if you can extend the terms from 30 days to 60 or 90 days. Negotiate a discount if you pay in advance.
2. What will the total costs be?
Outside of the cost of a product or materials are there other fees involved? Are there delivery fees, fuel surcharges or restocking charges for returns?
3. Can you get a liability insurance certificate?
You need written proof that your suppliers have adequate liability insurance in the event that their products or parts malfunction. Make sure this insurance is renewed every year.
4. Is the supplier going to sell direct?
Make sure that the supplier doesn’t sell directly to your end user at such a sharply discounted rate that you can’t compete. Don’t let them get you to establish their brand and then cut you out of the picture.
5. Is there a guaranteed sell-through?
If the product is a flop, you don’t want to get stuck with a product or parts and raw materials inventory. Talk to your suppliers about their return policies. You want to have the opportunity to return unsold products or materials, for credit or cash.
6. What happens if materials don’t arrive?
Does your company get a discount for goods that don’t arrive on time or can you get paid for goods that weren’t delivered and had to be sourced elsewhere.
7. What is the expected gross margin?
Make sure it is in line with your company’s average gross margin.
8. Under what circumstance might prices change?
How are price changes determined and how much notice does your company get?
9. Are there volume rebates?
Are there purchasing incentives and upon meeting them can your company get a rebate?
10. When is ownership of the product transferred?
You need to get a delivery and inspection clause in your contract that allows several days to check out an order before taking full ownership.
For the complete article, please see 10 Questions Every Entrepreneur Needs to Ask Suppliers.