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How small businesses can negotiate with large suppliers

| Jul 27, 2020 | Business Contracts

Small business owners know better than anyone the challenges of dealing with large suppliers. These huge companies may hold local monopolies over certain products, allowing them to adopt a hardline approach when dealing with clients with few competitive options.

Though these corporations may have a lot of influence, clever entrepreneurs have a few options when helping suppliers learn to play fair.

Four different tactics available to small businesses

Business owners find success with a small company through ingenuity, resourcefulness and preparation. The same attributes help entrepreneurs find opportunities in their dealmaking. Many businesspeople use variations of the following tactics:

  1. Increase or create value: When negotiating, some clients can offer benefits to the supplier that indirectly increase their business’ value. A small business owner can help the supplier break into a new market or region by leveraging their contacts and arranging introductions. Additionally, clients can adjust their orders to reduce a supplier’s risk.
  2. Alter purchasing behaviors: Some resourceful clients can adjust their buying habits to send a message to their supplier. This tactic requires comprehensive research and analysis as hasty decisions may compromise business operations. Some companies will combine orders across business units to reduce costs from individual orders. Local businesses can also form a buying consortium to cut expenses collectively.
  3. Locate a new source: Sometimes, enticing a competing supplier from an adjacent region may benefit small businesses. The primary supplier’s competitors are not attempting to break into the region due to a lack of clients. Bringing them clients can entice them to offer competitive prices. Some companies find success in creating the supplies themselves through vertical integration. If a client begins this process in earnest, a supplier may be more amenable to negotiating if they know they can remove a potential competitor.
  4. Play hardball: A final option for small businesses in an untenable business relationship is to get firm with the client. Canceling orders or reducing their volume can send a clear message. In response to price hikes, some clients ask for a subpoena of the firm’s finances to explain the increases. Often, the threat of a government regulator poking around in their books is enough to keep these near-monopolies amenable to a better deal.

An attorney can help

Those looking for more information on legal options for negotiation with powerful suppliers can consult with a local attorney familiar with business litigation. Lawyers can provide an objective eye on business contracts, assess any valid legal cases and work with government officials.