woman negotiating with others
From creating a plan to knowing exactly what to ask for, there are several ways to effectively go about negotiating payment terms when your business is struggling. — Getty Images/jeffbergen

Maybe you’re seeking to free up a little capital for a new product launch. Or maybe you’re needing to expand your operations and need to change your payment schedule. Perhaps you’re struggling during COVID-19 and are looking to improve your cash flow in a pinch. There are many reasons why a small business may seek to negotiate better payment terms with suppliers and partners. Here are some tips for how to approach vendors about adding time to your payables schedule.

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Make a plan

Before you reach out to your vendors, know what it is you’re going to ask. Stephanie Sims, founder of Finance-Ability, told CO— that small business owners should begin with a simple cash flow projection to understand what payment terms will work best for you.

“For existing contracts, have an early warning system for your cash flow so you know right away if you're in the danger zone with vendors. Check the projection frequently — at least weekly, more often if you've got a high volume of transactions,” said Sims.

Have a plan in place before you approach a vendor to negotiate new payment terms. It’s important to know what you can afford to pay now. This plan will give you a starting point from which to negotiate. Additionally, take the time to review what your rights are under your contract. Be sure to check for cancellation clauses and penalties in addition to late payment fees. You may want to speak to a lawyer about the specifics of your vendor agreement before exploring a renegotiation.

[Read more: 3 Expert Strategies to Improve Your Small Business Accounting]

If you know that you can't make payments in a timely fashion, reach out to your vendor sooner rather than later.

Stephanie Sims, founder, Finance-Ability

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Be proactive in your communication

Early communication is always more welcome than suddenly reaching out in an emergency. Try to be proactive about your need to renegotiate. Explore renegotiations and deadline extensions before you stop payment or cancel the agreement altogether. “Fair warning is always better than surprising a vendor by saying ‘I can't pay.’ If you know that you can't make payments in a timely fashion, reach out to your vendor sooner rather than later. Don't wait until you're already 30 days late to start the conversation!” advises Sims.

“Remember, the best time to negotiate better terms is when you don’t have an urgent need for them. Start investing in that process today,” recommends one expert. Build a great relationship with your vendors over time and approaching them for a payment term re-negotiation won’t feel as fraught.

A final note: in extenuating circumstances like a global pandemic, many vendors understand the challenges their clients are facing, and want to work with you. Some vendors (like landlords) already have programs designed to assist you, notes Sims. Research those, or ask your vendor if they've instituted such a program.

Find a win-win solution

“When you come to the table, suggest ways that more generous terms could benefit them as well. Explain how more cash flexibility may allow you to increase your order volume, for example, or mention that you'd like to send peers in your industry their way if you can tell them how easy this vendor is to work with,” suggests one expert in the American Express blog.

What can you offer in exchange for better payment terms? How will the improved cash flow allow you to help the vendor out in the future? Framing your ask in a way that makes the arrangement mutually beneficial will help the vendor say yes.

Ask for the most

Be reasonable in your ask, but aim to ask for the higher end of what you need. This is a negotiation, meaning there will be some back and forth as come to terms that work for both parties. For instance, if you need more time than your normal 30-day payment terms, ask for 60 days. You may end up with 45 days, but that’s still better than where you started. It can help to research other suppliers and vendors as a point of leverage and as a backup, in case your negotiation falls through.

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