To Be Successful In A Business You Need To Be Transparent To Your Suppliers

For a start-up company that is growing its business aggressively, cash flow is always tight and therefore, prioritising cash payments is necessary.

Most start-up businesses, in their early days, delay supplier payments to fund growth and meet other critical expenses. But you must realise that if you want to delay payments to suppliers, it is very important to take them along with you. Suppliers must feel that they have a stake in your success. With your success, they will succeed as well.

Payments to meet monthly salaries, rental, and utility & communication bills have to be made every month without fail. I remember many meetings with my finance head, trying to figure out which supplier to pay, and when and how to prioritise payments – so that supplies would not suffer and suppliers would be happy!

Each time payments were delayed, rumour mills would start working overtime and I would start getting feedback that our suppliers were nervous because they had heard that the company was closing down or I had sold off the company.

Suppliers are also businessmen and know that delayed payments do not mean their money is not safe. They simply want a confirmation of the delayed payment so that they can plan their own cash flows better. Once we give them a fresh date and honour the revised schedule, they would happily fund our short-term credit needs in future as well!

In order to reinforce the confidence of our suppliers, I used to hold meetings with them in our offices and over a cup of tea, along with a samosa and a pastry, I explained to them that the company was growing fast and their payments would be delayed for the next few weeks. Every supplier always supported us wholeheartedly, throughout our journey.

On the other hand, there were distributors of some big FMCG brands who would not accept any payment delay because they knew consumers demanded their products at our stores. We needed those distributors and suppliers more than they needed us and we made sure that we never delayed payments to them.

Whenever we delayed payments beyond the agreed norm, and this did happen several times, a few suppliers would stop their supplies.

The moment we started ordering goods from another supplier, I used to receive complaints from them stating that we had stopped buying from them and that their business with us was reducing!

They did not want to stop supplies to us! At best, they tried and reduced the margin they offered on the supplies to compensate for their funding cost. The moment payments became regular, the margin was restored by our suppliers.

Suppliers, understandably, want payments on time, but they do not want to stop doing business with the company. This was a clear indication to me that they trusted the company, they trusted our business and most importantly, they trusted our dream.

We stretched the payments to the suppliers but we never let the relationship break. As a wise man once said, “Stretch the thread of a relationship as long as you can, but don’t let the thread break. Once the thread breaks, no matter how hard you try to rejoin the parts, there will always be a knot in it.”

The author is the chairman of Guardian Pharmacies and the writer of the bestselling books, The Corner Office and The Buck Stops Here. Twitter: @gargashutosh