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Mending Vendor Relationships

Author: Larry Chester, President

Managing cash is always a prime concern for business owners. Between balancing the demands of their lender, payroll for their employees, collecting receivables from their customers and paying vendor invoices, this is a point of continued pain for many companies. Often the greater pressure is on the collection of accounts receivable. This always seems to be the most available source for improving cash flow, but when vendor relationships become fragile, it’s not just because money is tight.

It’s not unusual for a company to start to push out their payments when cash becomes scarce. Some payments cannot be delayed, like payroll. Some can be pushed out a month or two, like utilities. Even though they can be delayed, payments for rent or insurance can’t be pushed out too far, because of the compounding risk to the company’s operations. Just as these payments can create risk to the company’s operations, pushing out vendor payments can be just as critical to keeping the doors open.

  • Business – Residential window manufacturer
  • Location – Chicago, Illinois
  • Sales – $65 million
  • Ownership – Single owner

Initial Contact –

The company was dramatically impacted by the change in the economy, and a significant reduction in residential construction. This was complicated by the fact that several large customers had gotten into severe financial trouble and weren’t paying their bills. Management had worked hard to keep its union employees on hand and working, but the increased financial pressure had to go somewhere. The company controller wasn’t just stretching out their payments, he had pretty much stopped paying bills. Then shipments of critical components ceased. This created even more problems, because without components for manufacturing, production was halted and employees sent home, even though they were still being paid according to union contract. Vendors were so tired of empty promises they demanded that funds be wired before they would even load up a truck for shipment. Then, the controller quit.

Significant Findings and Recommendations:

Re-establishing Vendor Relationships

When the controller quit, it was discovered that not only were many invoices unpaid, but there were over 100 voicemails on his phone. He had obviously stopped working long before he left the company. The company had used up all of its component inventory and was dependent on daily shipments of parts from critical local suppliers. The relationship with these critical vendors had totally collapsed and funds were being wired in conjunction with the issuance of each purchase order.


  • Go through all of the voicemails and spend time returning each call, introducing the new controller to the vendors. Discussion then moved to the delay in payments and suggesting that a new plan would be put together to reestablish trust with them.
  • Talk to each of the three critical vendors and assure them that a new process and policy had been established, and the company was very interested in rebuilding a trusted relationship with them.
  • Trust had to be rebuilt. Establish a gradual easing of payment terms with the company as a means of getting reliable delivery. This will also loosen the cash stranglehold created by the wired payments before shipment.
  • The first step was to convince the suppliers to accept another form of payment instead of wiring funds prior to loading the truck for shipment. Once they accepted a check handed to the driver prior to unloading the truck, we were on our way. After a month of handing checks to the driver, and the checks didn’t bounce, we were ready for the next step.
  • The next step was mailing a check at the time the truck made the delivery. This demanded a leap of faith from the suppliers. But it gave us an additional 3 days of cash availability and continued to help build trust.
  • After a month of regular shipments and payments being made by mailing checks upon delivery, we asked for and received terms of Net 7 days. Once those terms were accepted, trust had been reestablished. Within another two months, we had grown our available terms to Net 30.


Although cash flow was still a struggle, delivery of crucial components was no longer a critical problem. The company no longer faced manufacturing shut-downs due to lack of material, and shipments from the three critical vendors were always received on time. With payment terms extended to Net 30 days, a significant amount of company purchases and cash expenditures were now on regular payment terms. This provided the company with an additional 35 days of cash availability, freeing up over $750,000.

As business owners work through the problems of the day, the balancing act that’s played sometimes misses a key component. Just as the manufacturing process couldn’t proceed without the parts that were needed for production, the failing business relationships had a dramatic effect on the entire company. This cost the company significant money in plant shutdowns and the loss of more than $750,000 in immediate cash flow. It’s important not to forget that businesses don’t work with businesses, people work with people. A sense of trust and dependability is all important in making sure that cash, purchase orders and parts flow back and forth.

Answering a phone call and being true to your word is more important than having buckets of cash in your office. Certainly, don’t downplay the importance of available money, but make sure that your word can be trusted. Know what you’re able to deliver, and don’t miss your deadline, whether it’s shipping a product, making a payment or calling to provide an update. Everyone around you is depending on information. If they can’t trust you at your word, then everything that you say or do is suspect. So, if this case study sounds familiar, maybe it’s time to make a change. If you are a victim of your own wishful thinking, it’s time to become more realistic. If your interactions suffer because you’re too busy with other things, it’s time to consider the importance of the people you work with. Let that guide your business decisions and your interaction with everyone – from your employees to your customers to your suppliers.


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