Negotiating Contracts With Vendors: What to Look For
Negotiating contracts with vendors is critical to running a successful business, and it takes collaboration across multiple teams. But many businesses usually don’t know how to effectively negotiate with vendors, leading to expenses that could have been easily avoided. That’s why every business owner needs to learn how to negotiate contracts with vendors.
If you’re looking to partner up with vendors or have already built a supply chain network, there are a few things you should look out for. These pointers will help you run your business more effectively and help you avoid overspending as you procure materials and services.
If you’re busy Googling “what is vendor negotiation” or “vendor negotiation meaning”, this article breaks down everything you need to know.
The keys to successful vendor negotiation
Anyone with even a few years of experience in procurement probably knows these five key points for building a fruitful relationship with your vendors. If you’re running a business, chances are you’re already doing at least a few of them. Let’s take a look at the best practices for negotiating vendor contracts.
Assess your position
Your first concern should always be whether the vendor fits with your company, and is in-line with your current mission. Every partnership has one thing in common, and that’s mutual interest. The more common ground you share, the more the chances of having a long-running relationship. On the contrary, if your values seem to clash with each other, it’s always better to walk away.
After that, you need a well-thought-out list of requirements that you’re looking to fill. Think carefully about barriers that the vendor will need to overcome, services or prices that you’re willing to negotiate on, and the things that you simply can’t compromise on.
Here’s some things to consider:
- Your requirements for the product you’re producing or purchasing
- Your budget
- Your company’s current sales goals
- Your goals for the new partnership
- What you look for in a vendor
Negotiate with more than one vendor
You should never walk into vendor contract negotiations without a viable second option. This should be your mantra when you’re negotiating contracts with suppliers. And when you’re discussing the possibilities with more than one vendor, you can always push for what’s best for you without the fear of ruining a relationship.
Talk with multiple vendors simultaneously. Ask about their prices, their product delivery process, and other aspects of their business. Get plenty of information to help you weigh each vendor’s competing offer. Comparing different offers means you’re not going blindly into a negotiation, and you’ll have knowledge of the market.
Risks and liabilities
Another thing to look out for in vendor contract negotiations is risks and liabilities. As a business owner, you’re the most vulnerable. That’s why you can’t risk holding on to any loose ends that could cost you in the future.
Again, to state the obvious—there are always going to be risks in business. Business is full of things you didn’t see coming, like a vendor misrepresenting their records, a surprise recession, or a global pandemic.
Instead of getting caught by surprise, it’s always wise to have clearly defined boundaries for risks and liabilities. Know when you’re willing to cut your losses and move on from a vendor, or when you need to renegotiate a contract.
Mutually beneficial relationships
This is something a lot of business owners get wrong. A successful vendor negotiation isn’t the one that nickel-and-dimes your supplier. Instead, it’s about building a healthy relationship where both of you keep each other happy.
Consider the terms and conditions from your vendor’s point of view. Cut some slack where you can. Offer non-financial terms in the contract that can make the vendor’s life easier, like flexibility in scheduling.
The goal is to have a strong partnership with your vendor because they’re industry experts with vast knowledge that you can use. And vendors that like you might go out of their way to help you when you need it.
When you’re thinking about how to negotiate with suppliers, start with your communication. Communication plays a significant role in any successful deal, and a lack of clear communication can result in losses. Always try to keep communications open-ended. Be brief, specific, and prompt while discussing the contract.
Personal, as opposed to virtual communication is more effective when you’re working on tricky problems, and that’s true for vendor contracting as well. Try to make your deals executive-to-executive, department head to department head, rather than through associates or juniors.
Also, make sure the person you’re negotiating with has the necessary authority to make a decision. You don’t want to waste your time with someone who has to go through their organization’s hierarchy before they can give you a firm yes or no.
If your discussions predominantly take place over Slack and email, use Ironclad to make the whole process more compact and streamlined. Ironclad is DOCX-native, and has an built-in instant messaging system to keep your counterparts in the loop. Just tag them where you need their input and they will be instantly notified.
How digital contracting makes negotiation and redlining easy
In the old days, stakeholders gathered around the table and spent days hammering out a deal. Then email arrived, and companies moved there for contract negotiation.
But since then, everything has changed in business— except contract drafting. So many people spend days sending each other emails and drawing up documents in Microsoft Words. It’s a time-consuming and inefficient process that costs the company time and brainpower.
But digital contracting is making all the difference today, especially when it comes to digital services, like IT vendor contract negotiations..
Here are just a few of the things that digital contracting can help with:
- Real-time status tracking
- Retrieve comments on particular segments
- Specific time-stamped draft copies
- Directly notifying users of any changes, so that they can offer input.
With the Ironclad, you’re automating a process in a way that no-one else can. The steps are simple: share access to the primary contract document with your colleagues and counterparties. From there on, any changes made will be completely transparent to everyone and every clause will have to be approved by each responsible party. With everyone looped in, collaborating on contracts is easy and simple.
How digital contracting helps you maintain positive vendor relationships
Think about it this way. A group of people is working on a contract that requires the vendor to ship $5 million worth of materials every month. The legal departments on both ends will be extra vigilant to ensure everything looks great.
Besides Legal, every department affected has to have their say. There are Finance, Product Management, Accounts, — every part of the day-to-day operations gets a say in the matter.
Imagine having the whole conversation over email, where everyone is sending a different soft copy with varying types of edits. A day’s delay means that nobody’s working on the same document. It’s a logistical nightmare.
Luckily, there’s now a platform where a contract management system handles all of these in real-time in one place. Everyone in teams across both companies can have their say and work on the same document at the same time.
Anyone can directly tag another user and request their input, and all of these will be completely traceable. All the redlining is visible and transparent to all the teams involved. This is why emails have been replaced by contract management software.
Unlike previously, where creating a contract could take weeks, or even months, digital contracting makes the vendor negotiation process, or any time you’re negotiating contracts with suppliers, a lot shorter and far more effective. You don’t have to trace paper trails all day long and send three emails just to make a few edits.
In this way, your relationship with your vendor stays positive. The redlining process becomes less stressful, making the overall negotiation less antagonistic, resulting in mutually beneficial terms.
How Ironclad can help
Ironclad is the first of its kind contract management system that provides world-class digital contracting services. Instead of doing everything manually, Legal teams can revise and redline the contract drafting process in one place, where everyone can comment, collaborate, and track changes.
Ironclad has revolutionized the whole revision and redlining process by providing a fast and flawless digital contracting service. You can draw up any type of contract from scratch without much technical knowledge. If you’re interested, request a demo here.