Distribution companies often look for better ways to improve their financial position by attempting to increase their revenues and profits while reducing their expenses and costs. This constant striving for the optimal approach keeps many companies thinking inside the box rather than exploring ways to move beyond the established boundaries. One such idea to increase your revenues is the supplier bill-back type system also known as the proof of delivery or proof of sale system. Let me elaborate on how such a system works and how implementing it may benefit your business.
Suppliers are often reluctant to discount an item. Approaching your suppliers and requesting a special price for a customer or a chain of customers in order to sell more or introduce a new product that is currently being supplied by your competitors, is something your suppliers are open to consider and are already doing. The surprising fact is that only a few distributors are taking advantage of these opportunities by challenging their sales staff and accordingly their suppliers.
Why should your supplier agree to do it?
1. Take the business away from their competitor and yours.
2. Position yourself with better pricing to the customer so you may increase the odds of getting the business.
3. Allow you and your customers to sell more of this product and be more competitive.
The supplier bill-back program is a powerful negotiating tool that can be used to obtain special pricing from a supplier for a specific customer, group of customers, specific item or group of items for a specific time period. This system enables the distributor to do the following:
1. Be able to purchase items from the supplier at the regular cost without having to identify a special cost on the purchase order.
2. Automatically and instantaneously adjust the cost assigned to each line item on each customer order entered, to accurately calculate customer profits and sales staff commissions. This logic only applies to the appropriate items and customers negotiated by your bill-back program. For cost tracking, the proper consideration must be given to the calculation of the negotiated low net cost while adding the proper freight factor if applicable. This should reduce the frustrating commission calculation while allowing the sales person to sell the item at a profit and remaining competitive.
3. All distribution sales to customers that are not affected by this logic will remain the same.
4. Provide the proper reports or spreadsheets for internal tracking as well as the proper reporting to the supplier for dollars due back to you the distributor. This should resemble your customer statement form but is a supplier due statement.
5. Provide a mechanism to track dollars owed to you by your suppliers vs. dollars already paid and keep track of dollars still pending that have not been paid. This will enable you to generate supplier statements when necessary with the proper audit and history.
6. Position your sales staff to obtain the prices your existing and potential customers are paying for certain products to your competitors. Once price is obtained negotiate better prices with your suppliers to allow you both to earn the business.
Here is an example:
ABC Distribution company buys their products from XYZ supplier and sells their product to customer LMN. Typically, ABC buys the product for $10 from XYZ and sells it for $12 to LMN. However, in order to be competitive the sales person must sell the product for $10. If no implementation of the bill-back system takes place, this sale is then generated at no profit to the distributor and no commissions to the sales person. If on the other hand the proper negotiation takes place with the supplier and their agreement to lower the price to $9 to the distributor for that particular customer, the following bill-back scenario is created: The purchase order to the supplier will still state $10. However, when orders are entered for that customer and that item, the system should automatically adjust the cost to $9 therefore calculating profits and commissions correctly. Next a statement is then generated to the supplier tracking the $1 owed to the distributor.
Demosthenes, The Greek orator and politician said: “Small opportunities are often the beginning of great enterprises.” So next time you face the challenge of improving your financial position, seize the opportunity and incorporate this new logic in your business. Doing so will add a great function to your arsenal of business tools and help improve your great enterprise.