Success by Association, Collection Credit and Receivables Article

As you start your business, you aren't solely in control of your success. Suppliers, creditors, and your competition will mold your every move. In this excerpt from How to Really Start Your Own Business, leading entrepreneurs offer advice on mastering outside influences.

Find suppliers you can count on. You may think because you are paying your suppliers that they will automatically do what you ask and what they promise. Unfortunately, that is not always the case. They may fail to deliver on time. Or they may deliver on time but with a flawed product. Or they may be both late and provide a flawed product.
Whatever the supplier problem you encounter, it can damage your business. My business, for instance, depends heavily on printers to provide the newsletters I put together for clients. My editorial and graphic product can be undone by a printer who delivers the newsletters late, with ink stains, improperly folded, or otherwise not up to my standards. Clients at that point forget the editorial and design work and focus on the printing problems.

So it is essential that you check out suppliers ahead of time. Ask for references, and call those references. Do some trial runs, if possible, before opening for business. Don't be afraid to tell the supplier what you expect and how important it is that he or she comes through for you.

If your supplier doesn't measure up, don't be afraid to change suppliers. You make that possibility easier if you avoid relying on a single supplier. In my case, for instance, I make it a point to direct at least a small portion of work to a second printer, just in case my primary printer has a fire, goes out of business, or is otherwise unable to provide what I need.
Seek long-term relationships with your best suppliers. Suppliers who provide a top product on time and at a reasonable price quickly become essential to your company's ongoing success. For that reason, it is important to cultivate good suppliers. You do that, first, by paying your bills on time and, second, by establishing open lines of communication. The communication part means letting your supplier know as far in advance as possible about an extra or unusually large shipment or if you are going to be late in paying your bill.
Says Gordon Segal, founder of Crate & Barrel: "I think the most important thing is to realize that you want to build vendor relationships for the long term. So you don't go out in the marketplace and say, 'I will fool him and I will get away with something [by not paying bills].' You never get away with anything, anyplace, anyhow. You really have to build relationships through honesty and working with people on a long-term basis."
Establish good credit. When you seek out suppliers for major orders, they will likely conduct a credit check of your business. If you have been paying your bills on time, they will extend credit to you. If you haven't or simply don't have a credit record because you are just starting out, you may encounter resistance and have to pay for items upon delivery.
If you don't have a credit record, you may be able to talk your way around the problem, says David Liederman, founder of David's Cookies, a chain of chocolate-chip cookie stores: "If you have no money, you'd better get a piece of publicity pretty fast to let Mr. or Ms. Supplier know you have a product that has a future so the bills can be paid next week. It is a problem. I am not going to say it isn't a problem. I found that most suppliers, if they believe in you, if they see people buying your products, if they see people writing about your products, will give you a little bit of credit."

James Lowry, founder of James A. Lowry Associates, a Chicago-based consulting firm, recommends a similar tactic in persuading suppliers to do business with you. "When you open your door, people are not going to believe you. They are not going to believe that you are going to do it. I think the best thing -- and I think it is why initially I did government work -- is I could take the contract, which was a legal document [from] the city of Chicago and later [from] the federal government to the suppliers. I took the actual contract and said, 'We will be paid.' "

Another approach is to establish credit quickly via prompt payment of your telephone, electricity, rent, and other bills. Then you can refer suppliers to those creditors for references. Or as Christine Martindale of Esprit Miami suggests: "Even if you have enough money to open your own business, you should borrow money from the bank -- even if you put it in a money market account, because when you really need it, you are not going to have the credit experience to get it." This will likely involve borrowing against money you already have on deposit.

If the preceding isn't enough to persuade suppliers -- and in a tight economy it may not be -- then you may be able to compromise by paying for part of your order on delivery and the rest within 30 days. If you strike such a deal, by all means be certain to pay the outstanding amount within the promised 30 days.
Watch whom you extend credit to. The other side of the credit coin is your own credit policy. More than one start-up business has been crippled because of its eagerness to fill a large initial order. By failing to do an adequate credit check and/or seek some up-front payment, the company inadvertently became involved with a deadbeat account or a customer that had fallen on hard times and used it as its bank of last resort. For a start-up company that is short of resources at the beginning, failing to get paid for a large order can be disastrous.
Reexamine your positioning. You may think that your entry into the marketplace is happening quietly and unnoticed. But chances are competitors have taken quick and thorough notice of your existence. The managers or owners of competing businesses may pose as customers and telephone you for prices and terms to get a better sense of your position in the marketplace -- and your threat to their position.
Within days, your competitors may alter their products or services to match what you have put together. So it is imperative that you be out there in the field watching what is going on -- and prepare to improve your service or alter your price as appropriate to keep a step ahead of the marketplace.