When Buying for Your Business, Terms are as Important as Product Price

Price negotiations are usually a critical part of the purchasing process, but price is not the only issue to consider when you’re working out a vendor agreement. Beyond the cost of the item itself, look at quantity discounts, add-ons (such as freight and insurance), and the payment terms.

Quantity Discounts

To determine the true value of a quantity discount, calculate how long you can expect to store the material and what your cost will be for carrying the inventory, then add that to the cost of the goods. Remember to factor in a certain amount of spoilage for items that might get damaged or otherwise become unusable or unsellable while you are storing them.

Compare that total with your cost for buying a smaller quantity that you’ll move quickly before making your decision on quantity.

Quantity discounts are often available if you make a long-term purchase commitment. Some suppliers may be willing give you volume pricing and deliver in increments so that you don’t have storage to deal with as long as you have a contract for the purchase.

Such a commitment may also allow you to lock in prices on volatile commodities, letting you protect yourself against price increases until it’s time to negotiate again.

Transportation

Freight is an excellent—and often overlooked—negotiating point. If you’re paying the freight, you should be selecting the carrier and negotiating the rates. If the vendor insists on choosing the carrier, do some research to make sure you aren’t being overcharged on freight.

If your suppliers are delivering on their own trucks, negotiate the delivery fee as part of the overall price.

Take a look at any handling and insurance fees as well. It’s common for suppliers to self-insure materials in transit, which means they don’t pay a fee to the carrier, but they might charge you the fee they would have paid.

These items all contribute to the total price you pay, and they’re all subject to negotiation.

Payment Terms

Payment terms are also an important contract consideration. Some companies offer substantial discounts for early payment; others will extend what amounts to an interest-free, short-term loan by offering lengthier terms.

Find out what your vendor is willing to do and agree on the terms that are best for you.

Negotiate

Always remember that every element of a sale is open to negotiation. At all stages of the process, leave room for some give-and-take. For example, if you are asking for a lower price or more liberal payment terms, the vendor may ask you to agree to a more relaxed delivery schedule. And if you need a precise delivery schedule, be prepared to give up something else.

The bottom line in purchasing is the bottom line: know and negotiate the total amount you’re going to pay before you buy.

Jacquelyn Lynn
Follow me
Latest posts by Jacquelyn Lynn (see all)