Business mistakes: poor supplier and customer controls

Common mistakes for new businesses include setting up unsatisfactory credit arrangements and not taking due care when choosing suppliers. Careful decisions in these areas protect your profit margins and business reputation.

Setting up poor supplier contracts

Finding a reliable and competitively priced supplier can be vital to the success of your business. This is because you rely on suppliers for the goods and services that keep your business running. Securing the best deals can directly affect your operational efficiency and cost management.

When selecting your suppliers, price is an obvious concern. However, other factors such as value for money, quality, reliability and service must also be taken into consideration.

Steps to improve supplier selection

Establish exactly what you are looking for in a supplier considering the following steps:

• define your requirements clearly and use a supplier evaluation checklist.
• conduct a credit risk assessment to confirm your supplier’s ability to deliver
• negotiate performance-based contracts with clear quality benchmarks and penalty clauses for non-delivery12
• review contract renewal terms and ensure exit strategies are in place
• monitor supplier performance using key performance indicators (KPIs)

Once you have identified your chosen supplier, you can then discuss terms and conditions and draw up a formal contract.

For more information see:

• choosing the right suppliers
• negotiate the right deal with suppliers
• manage your suppliers

Setting up poor credit arrangements

If you are dealing with a potential new customer, it can be tempting to offer credit without carrying out checks. But this can leave your business exposed to delay or non-payment. You may find that you cannot pay your suppliers or bank on time. In turn, they may withdraw their supplies or funds, putting your business at risk.

To avoid potential problems with customer payments, you may want to:

• carry out credit checks on new and existing customers
• check bank references, trade references and online credit ratings, and check business credit scores
• set clear payment terms (for example they must pay within 30 days) and that the payment terms for your debtors are longer than the terms you offer your customers
• motivate early payments with early settlement discounts.
• use invoice reminder automation and debt recovery procedures to encourage prompt payment
• investigate legally enforceable ways of encouraging prompt payment

See how to ensure customers pay you on time.