Accounts Payable Tip 2: Negotiating Vendor Terms
I love negotiating vendor terms. I know that’s a strange thing to start an article with, but I do. However, it hasn’t always been this way. I used to be like a lot of people, in the sense that I dreaded situations that involved negotiating. The one situation that seems to immediately surface in my mind is a car lot, before there was CarMax, and having to haggle with the car dealer that was swindling you out of everything you wanted and into everything that they were trying to move off the lot for an “absolute steal”. I no longer fear car dealerships, street vendors in New York, or any other negotiating situations. Why? I discovered that there was a process to follow that took all of the pain out of the negotiating vendor terms and put me in the driver’s seat of negotiation (no pun intended).
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The key thing I learned to turn the tables during the negotiation process is the 100% - 100% rule (or, at least, that’s what I call it). I used to think that the premise of negotiation was compromise. In order to compromise the least, it always seemed imperative to keep my intentions a mystery and identify the other person’s intentions first. It was essentially a battle of the wills.
Compromise
I hate compromise. When people compromise they have to give up something. What they have to give up may be small, but it could also be big. The bottom line is that regardless of what has to be given up, someone in the scenario loses.
100% - 100%
The beauty of negotiation is that both sides achieve what they need by giving each other what they want. The trouble with this particular definition of negotiation is that sometimes it’s not possible for either side to get what they need and want. In that case, there is no deal. This is especially difficult if one party, or both parties, in the negotiation really wants to gain something from the negotiation. In this scenario, compromise would have to be involved. I am of the opinion that over time the party, or parties, that had to compromise will have diminishing happiness about the agreement and that eventually the partnership will erode and die.
Vendor Terms?
100% - 100%, can that really work with vendor terms? I think that the rule can absolutely apply. However, it takes time, attention, and dialogue. Here are a few ideas that can help:
- Know your true cost – having the pricing structure and history of the vendor is important, because you will be able to identify trends.
- Combine your purchasing power – you may be selling yourself short if you come to the table with a portion of your buying power.
- Paint realistic expectations – with knowing the vendor’s history and the power you can realistically have over the situation.
- Know the vendor’s language – With a lot of vendors they spell out their constraints in their invoices.
- Know other customers – It’s not dirty to dip into your network and ask what the experience has been with certain vendors.
- Be ready to act – there is nothing more painful than working a deal that you can’t sign off on.
- Make sure you are open with the vendor – even after all of your internal work, make sure you listen before you act.
Bottom Line
Before you enter into negotiation with a vendor make sure that you’ve done your homework to identify if you can achieve your desired outcome from the negotiation, so that you are prepared and have the upper hand.
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