Be it for professional or personal matters, our days are filbed with negotiations: some are as insignifican as deciding where to have lunch with a friend, and others demand days, weeks, or even months of preparation, such as the purchase of a building or the merging of two business entities.
For systems contractors, the approach to negotiating price, delivery, and payment terms on product has a strong impact on the bottom line. Not only does it affect cash flow—a factor that is becoming increasingly important in an economy where credit is harder to obtain—it affects the long-term relationship that a contractor shares with its vendors.
Kelly McCarthy, president of Genesis Integration in Edmonton, AB, Canada, outlines two principle approaches to negotiations involving the output of funds: either the
Those companies that don’t overstock inventory are more likely to be taken seriously when they try to negotiate more favorable pricing and terms. person attempting to get the best price decides that this is a one-time negotiation, and therefore tries to beat up the vendor to obtain the lowest possible amount, or; it’s a discussion that takes into account the relationship that the contractor has—and wishes to continue enjoying—with the manufacturer. “I think that the word ‘negotiation’ is almost interchangeable with the term ‘mutual compromise,’” he said. “I want to be able to do business again with the person that I’m negotiating with.”
In general, contractors are seeking the same deal: the most reasonable price, delivery dates that don’t require them to store products for a long length of time, and zero, or minimal, shipping costs. To place yourself in a position where a manufacturer will be open to negotiation, it’s necessary for contractors to hold up their end of the bargain: those companies that pay their bills on time, and that don’t overstock inventory (requiring them to send equipment back to the vendor) are more likely to be taken seriously when they try to negotiate more favorable pricing and terms.
“Part of negotiating is understanding the position of the other person, and the other person needs to make a dollar, too,” McCarthy said. “I’m not saying, ‘open the book up and pay everybody what they’re asking for.’ However, one of the biggest mistakes is expecting that every time you pick up the phone for an order, you’re going to get a deal.”
Timothy M. Hennen, senior vice president of audiovisual integrated services at IVCi in Hauppauge, NY, relays that before going into a price negotiation, his team examines the patterns within the company—namely, what products that have been specified recently—to demonstrate buying volume. “We will lump some projects together or look at the run rate, and we can sometimes negotiate better pricing at certain times of the year,” he said, adding that the main points he negotiates on are pricing, shipping, and payment terms. “My customers and their purchasing agents are trying to get me to take projects at lower margins, and the only thing to do is to have the manufacturer help you to try and absorb that.”
One cash flow management strategy that many businesses employ is holding off on payments as long as possible, which requires manufacturers to act, in a way, as a source of financing. “The best price should always be prompt pay, where it’s almost a bonus to the contractors for paying earlier,” said Jeanne Stiernberg, principal consultant at Stiernberg Consulting in Sherman Oaks, CA. “However, now if bank financing dries up for contractors, having a vendor that provides longer payment terms that aren’t too expensive is a big plus as well. The terms in general— whether prompt are long-term— is an important factor.”
The flip side is that as banks tighten up on credit, it’s likely that manufacturers will, too, and contractors that have employed this tactic will be forced to find other ways to remain liquid. Coupled with this is the strong potential for manufacturers to offer better incentives to pay. “You might see better deals on the quick pay side so that their cash flow is increased and they are borrowing less,” McCarthy said. Money will be difficult to obtain for a significant period of time, he adds, and while cash is always a driving factor in business, it is going to become even more important in the near future.
While the current economy may have business owners focusing on the short-term, this doesn’t mean that the cultivation of long-term relationships should fall by the wayside. John Stiernberg, principal consultant at Stiernberg Consulting, notes that negotiations become easier down the road if contractors promote a partnership between them and a select group of vendors by sharing their growth strategy and marketing plan—and how the vendor fits into it—for the future. “This helps to build common ground for a high-leve relationship between the two companies,” he said. “It’s a platform for excellent business for both parties for the years to come.”