Secrets on Negotiating One Million Rmb Credit from Suppliers
In 2015, I started to provide my service to the eBay and Amazon top seller in Ipoh. Just within 12 months. We increased the sales and gross profit by more than 300%. Annual revenue surpassed the 8-figure benchmark, ten million and above.
People asked how I did it? Actually it is not rocket science. In this article I will be sharing the secrets on one of the strategy I used to get this performance.
However to explain this well, this is going to be a long story. Thus this article is the longest I ever write. Sorry in advance as it will be in two parts.
Before I joined, the procurement department primary task is:
A) Analysis and sturdy market information on hot products
B) Search for different suppliers.
C) Ask for quotes and samples.
D) Compare prices and qualities.
E) Identified and developed the best value products if needed.
F) Sales then list the product for and start selling.
Such method is the typical procurement strategy for new sellers which are on the market less than one year. If you had survived for a year and profitable, Congratulations! You had beaten the boss at the first level One of eCommerce.
The rewards for completing this Level One is more powerful weapons available for you, if you know how to get it.
After completing Level one, Sellers feel more optimistic. The world is to their plucking, and they start to hire more people to attack more markets and sell more products. Now is Level Two - Expansion of your Business Empire! However, in this level two of eCommerce game, one of the tough Level Boss is Capital and Cash Flow! The second level boss don't show itself immediately. It is lurking somewhere, ready to pounce on you.
When the business expands too fast, it eats away the capital quickly. Sellers then try to maximize the money available by just purchasing Ngam Ngam (just enough) stocks. That’s when the boss strikes!
Subsequently, out of expectation events happen such as stock arrives late, or markets are too hot. It leads to hot selling products out of stock. You lose market share, and competitor jump on this weakness. Without choices all your customers start to buy from them. Later when your stock arrives, it is not as good selling as previously, because the marketplaces algorithm favors your competitor now!
Sales did not improve as you projected, and added headcounts drain the cash continually. Either you let go someone or buy lesser stocks to preserve the money. Morale is low, and the pressure is too high. This Cash Flow Boss is cruel and vicious. It had caused many downfalls of business. Be careful!
But Do Not Despair!
One of the powerful weapons needed to kick this Boss is to utilize the Legendary Weapon obtained for completing Level One. Free Credit Terms from Supplier. This means the supplier provide us stock without paying first. After we sell the product, we then reimburse them back the cost and keep the profit, within the agreed credit period. We free valuable cash and don't incur interest.
When I proposed this "weapon" to the top seller, he didn't believe it can be possible. Just like Arthur didn't think that he can withdraw Excalibur. In previous transactions, the company had to paid money first before they can get the products.
We did it and not just that; we grew the credit to more than ONE MILLION RMB credit terms from the supplier! By turning these one million credits monthly over a year, we generated millions of revenues without even utilizing our cash.
This is the eCommerce Game Guide to lead you to get your hands on the “Legendary Sword” of Credit!
To pull this legendary sword, you first need to gain the skill set of “Negotiation.” I obtained this skill sets when I was the Head of Fixed Devices in Huawei negotiating with tough opponents in Telecom Companies.
In this article, I will be sharing the essence of this skill set.
First, Negotiation is not a zero-sum game. It means we don't negotiate to win over others. We negotiate to achieve both WIN-WIN situation. I believe the best negotiation result is to reach an equilibrium point which satisfied both parties interests. If both parties reach a deal after putting the effort in the discussion and collaboration process, both will look at the future of the agreement. It creates a bonding effect whereby both parties will try their best to maintain the deal and expand the businesses if possible. Here is an excellent article on it.
Second, PRICE is not the most critical aspect of a negotiation! What! I think the top seller wanted to vomit blood when he heard that. In fact, the whole sets terms and condition is much more critical. For a cash flow shortage company, getting free advance stock and pay later is much more valuable than getting a 10% discount. If you had no cash to buy, then it doesn't matter if you can get further 50% discount!
Third. The whole negotiation process did not just happen on the meeting table. It started way long ago. You had to determine your objectives, analysis your selling party interests, prepare the strategy to achieve your goals and execute the strategic action plan to create the optimum stage for the final negotiation. Then only the other party will gladly accept the WIN-WIN situation prepared by a good negotiator. It’s like a good game of chess, and you enjoyed seeing the opponent reacting to your strategy.
Further tips on my experience:
A) A winner always loses first, because he knows where and when to lose so that when it is needed, he will win at the critical position to reach his objective.
B) The party which had time pressure will have to give more.
C) Unprepared party before negotiation will have to give more.
D) Those who prepare to give up the negotiation will get more.
OK! Enough on the theories. Let’s see what we have done to kick this Boss!
We started our long-term strategy with data analysis. We sorted out the top-selling products which had consistently performed. Strategically good products should never be sold out. However, this seller always had these issues which affected the sales significantly. Then we selected those top-selling products which had been selling and buying continuously for more than a year and identified the top suppliers.
Any seller will always focus on consistent sales. This thinking process applied to supplier also! If it is a first-time sale, some seller might take advantage of the innocent buyer by making a kill as they do not expect you to come back. However, if it is consistent sales for an extended period of a year, seller rationally will want to increase the sales for this buyer. Thus, this continuous purchases for over a year was a valuable track record, just like your good credit report.
After identifying the suppliers which we had high chances of getting credit terms, we started by applying our strategy on the supplier direct contact, sales staff first. Casually, we just began to asked small allowance for late payment from the sales staff.
Usually, we needed to pay a down payment for the preparation of the goods. When the products were ready to ship, the seller will request the remainder payment.
For the first time, we tried to delay small amount first. Our procurement staff was trained to be friendly with the supplier. She explained that due to the tremendous growth in the company, there were many invoices to be paid. The company had implemented fix Payment Schedule to manage the payment. Hidden message was we are paying late not because of business was no good. It is because sales are out of expectation, and we need to issue many orders so finance need to handle it properly periodically.
Bro, This was done by Lazada on us as well!
For example, if the products were ready on 7th, she tried to persuade the seller to released first on the 8th to and we promised a fix payment date on 21st. As we were a long-term buyer, the supplier agreed. Subsequently we ensured we paid on the 21st. After few similar transactions, we started to increase the amount delayed as the seller confidence increased on our capability on paying.
Then we reached a threshold whereby the seller began to get uncomfortable on the credit terms extended. The seller later reported this to her boss. We anticipated this move, and moved our next piece of strategy.
What happened next? Exiting final moment on the negotiation table where I "Sai Lang" like the God of Gamble! Stay tune for part 2!