Communication is essential, but so is good judgment
When the going gets tough, even the tough stick their heads in the sand sometimes. For example, when a small business grapples with its cash flow and can’t pay vendors on time, the boss might be inclined to ignore the problem in the hope that it will go away on its own.
Usually it won’t – and the ostrich-like behavior will only make the situation worse.
Eric Siegel is an adjunct lecturer in management at Wharton School and president of Siegel Management, advisors to middle market growth companies. He offered some advice on how to talk about money with vendors during recessionary times.
“I think communication is normally a good thing,” says Siegel, noting that some of us have a tendency to duck unpleasant calls and discussions, which, he says, only antagonizes people.
“So, with some exceptions, it’s a good policy to take calls from vendors about their invoices and sometimes even preempt their calls.” On the one hand, Siegel recommends telling the vendor that – for example – you’re in a tight cash flow period and will need to switch from paying every 30 days to a 45-day schedule. That sort of proactive communication, he says, “will win friends and help with the bonding of vendors.”
On the other hand, he says, “You shouldn’t use that as a blanket policy. There could be adverse implications.” A crucial vendor could decide they don’t want to take the risk that you’ll go out of business and leave your bills unpaid. They may insist on shipping COD instead.
What to say to vendors – and when to say it – is a question of culture and climate, says Siegel. Before picking up the phone to talk turkey with a vendor, ask yourself what kind of relationship you have with them. Are there feelings of trust? “If so, “ he says, “sharing financial information can be useful.”
When cash is tight and you don’t know what to tell your vendors, Siegel recommends a three-step process as follows:
- Understand the issue that needs to be addressed. You owe money, but your customers might not be making their payments; or you lost a big customer; or business has fallen off across-the-board. Whatever the need is, be sure you can articulate it.
- Know what you want to achieve in order to address the need. Better payment terms from the vendor? A discount? Free delivery? Keep a specific goal in mind.
- Have a communication strategy. Now that you know what you want to achieve, think about how to express it. There’s no single surefire method. Again, it will depend on your relationship with the vendor. How do you normally communicate with them? Casually? Formally? By phone? Email? Face-to-face? Stick with what makes you – and your vendor – comfortable.
“There’s a head-in-the-sand reflex with vendors,” says Siegel. “And it’s rarely a good idea. Communicating is always good, but how much you communicate is based on who you are, who the vendor is and your relationship.”
