How Clients and Suppliers Can Help Finance Your Glass Business

By Marco Terry
August 1, 2016
RETAIL : MANAGEMENT

One of the best ways to finance a business does not involve using a financial institution at all. It involves clever ways of working with clients and suppliers so that they help you finance your glass business.

Now, let’s be clear—your clients and suppliers won’t necessarily “finance” your business in the conventional meaning of the word. But the effects are exactly the same and are often much cheaper than any other kind of financing.

The bottom line is that clients can help finance your business by paying invoices quickly, or, better yet, by prepaying them. Suppliers, on the other hand, can help finance your company by offering generous payment terms.

Keep in mind that this system is not perfect. It’s unlikely that you will get all your funding needs met using these techniques. However, these techniques will definitely improve your cash flow and reduce your reliance on lenders.

How to get paid by clients quickly

Getting paid quickly by clients can be hard. And getting a prepayment may be nearly impossible. However, it can be done under the right circumstances.

You can dictate your terms to clients only if your products and services are in high demand. Your company must provide great products and services and your clients must want to work with you. Otherwise, getting clients to pay quickly may be challenging.

1. Work with good payers

Are your clients good payers? It’s hard to tell, unless you have worked with the client before. An effective way to determine whether a new client will be a good payer is to run a commercial credit report on them. This report tells you exactly the type of payers that you will be dealing with.

Reputable credit bureaus include Dun & Bradstreet, Experian and Cortera. For more information, read my prior article “Evaluating Credit” on page 44 of the October 2014 issue.

Obviously, you should work only with good-paying clients. If you cannot avoid clients with bad payment records, demand a prepayment.

2. Make sure clients pay you before you have to pay suppliers

This arrangement involves careful planning, but make sure that your suppliers offer you terms that are better than those that you offer to your clients. For example, let’s say that your suppliers give you net-50 day payment terms. Ask your clients to pay you on net-30 day terms (or, better yet, net-20 days).

This strategy allows you to use the money from the client’s payment to pay the supplier. Although this may be the oldest trick in the book, it can still be difficult to pull off. Managing the timing of client collections and supplier payments can get complicated if you have multiple projects with different clients and suppliers.

3. Negotiate a prepayment

It is possible to request and get a prepayment from a client. However, it is also very difficult. Unless your product or service is in high demand, your clients will probably insist on paying on their usual terms. Your only tool is to give them an incentive to pay quickly.

Incentives vary by client and project. In some cases, the incentive can be a discount. Basically, you provide the client a discount if they prepay. In other cases, the incentive can be more complex. You may offer additional work or an accelerated delivery timetable in exchange for prepayment.

How to get longer terms from suppliers

The second part of the cash flow equation is to get better terms from suppliers. Getting a supplier to give you 30 to 60 days to pay an invoice is the same as getting a short-term, interest-free loan from the supplier. This delayed payment can help you quite a bit if you use it well.

If your glass business is large enough, you may be able to get away with simply “demanding” better terms from your vendors. For the rest of us, it’s not that easy.

1. Is your supplier able to offer terms?

Your company may be fiscally responsible and deserve to get generous terms. However, if your supplier is not financially sound enough to offer such terms, you won’t get them. Consider running a credit report on your suppliers to evaluate their financial strength. Work with suppliers that offer good products/services and are financially strong.

2. Does your company deserve terms?

Unfortunately, not every company deserves to get payment terms. Vendors prefer to offer terms only to clients that have a long track record of paying on time. If your company is new and has no track record—or if the payment record is spotty—there is a strong chance you won’t get terms. In that case, you will have to build a track record of on-time payments.

3. Build terms the right way

The good news is that any company can start to build terms if they follow the right strategy. Work with vendors that report information to credit bureaus. This step is very important and helps you build a credit profile. First, ask for small terms—perhaps a payment in net-10 days. If you don’t get that, don’t worry— the strategy still works.

Pay your vendors on time. Actually, pay them a few days early—every time. Develop a reputation for being a great payer. This strategy helps you build credit with vendors and improves your credit report. Pay early for four to six months, and then request an increase in your terms. Ask for a larger line, more days to pay, or both. Then repeat the cycle. Keep paying early and asking for better terms every four to six months until you reach the maximum that the vendor is willing to offer.

The author is managing director of Commercial Capital LLC, a factoring company and leading provider of invoice financing to companies in the glass industry. He can be reached at 877/300-3258.