When was the last time you revisited your vendor terms?

Vendor terms are one of the keys to operating a successful business in the restaurant industry. They facilitate cash flow management, streamline your A/P processing and help manage surplus inventory and cost.

When initiating new vendor relationships, most vendors are likely to set your account at COD or 7-day terms. Understandably, vendors want to get their money as soon as possible in consideration of their own cash flow. However, this doesn’t mean they are not willing to negotiate better terms. It may be necessary for you to build vendor confidence by consistently meeting the initial payment terms, but it is to your best advantage to continue to negotiate until 21 or 30-day terms are granted.

Limited vendor terms will have a negative impact on your cash flow, as they restrict your lead time for cash flow management and/or inventory turnover. In other words, it is not ideal to pay a vendor for goods before making a profit. Additionally, limited terms require continuous processing of cash payouts and manual checks to vendors. This practice is inefficient, costly and takes valuable time away from overseeing your business operations. Good vendor terms will allow you to streamline your bill pay process into an efficient weekly task and reduce interruptions to management during vendor deliveries.

Vendor terms also allow for better inventory management. If you return unwanted product, and you are paying for the cost of goods upfront, you will have to wait to get your money back. However, having vendor terms will allow you to receive a credit for your return prior to paying your original invoice and applying it to your outstanding balance.

In summary, securing optimal vendor terms is a key factor in effective cash flow management, which is one of the most challenging aspects of running any successful business. You can’t negotiate when you pay your employees, rent, insurance or sales tax, however, you CAN negotiate improved vendor terms. This will allow you to consistently meet all other fixed operational costs.