Business is about solving problems and building mutual relationships across the different value chains.

One of those crucial relations is the supply chain. Depending on how you manage it, it will make or break your business because of its importance.

With the emergence of Covid-19, which has battered and collapsed many businesses, some SME players are changing tactics to stay afloat.

Many are attempting to go into self-preservation, by delaying to meet their obligations to their suppliers; a move aimed at managing their cash flow.

While this may appear like a good business practice, it should not be encouraged because of its adverse consequences on the entrepreneur, supplier, and the entire economy.

SMEs ought to appreciate the fact that at the centre of any business model is a supplier whose interest must be factored into the entire business operations to balance the equilibrium.

A study by the University of Central Arkansas concluded that late-payment or non-payment of creditors has a huge effect on the entire supply chain, and is one of the leading causes of business failures.

Let’s take the case of South Africa. Annually, it is the norm for over 11.5 percent of invoices to be paid late, while about 7.5 percent end up being written off because of failure to pay.

But this shouldn’t be the norm anywhere in the world. Any SME with prospects of growing in size and profitability should manage their supplier-client relationship very well. And below, we provide some strategies to help you do so effectively.

Invest in SME-supplier relationship

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Many SME operators are preoccupied with building customers’ and employees’ relationships in their companies.

Whereas this is core to business success, no entrepreneur or SME operator should forget the critical role of the supplier in the business ecosystem.

The supplier is important for two main reasons; ensuring that you get timely quality supplies, and to a very large extent, influencing the final pricing of your products.

Hence, effectively managing your relationship with suppliers will ensure that they will handle your deliveries with care, and also deliver them on time. 

They will replicate the same good relationship even in the pricing of their products, and may provide free deliveries sometimes.

The easy way to build these relationships is to interact with your suppliers, not only in times of need. Instead, pick up the phone, and call them just to find out how they are doing.

When you treat them as human beings and not just as suppliers, they will replicate the same humane treatment to you.

And like a study by Thoo, Abu Bakar, Amran, and Rohaizat (2012) concluded, SMEs need to build deep supplier relationships to increase their stability and reduce supply shortage risk. You should ensure a mutual relationship with your suppliers.

Learn to effectively use other people’s money

SMEs are increasingly learning from the banking sector on how to use other people’s money to make a profit and then pay back later.

Take, for example, the supermarket business. The majority of the SMEs in this sector cannot afford to stock all the products that make up a supermarket using the old payment on a delivery system or upfront payment.

Players in this sector, as a result, have mastered the art of keeping the business flow unhindered through credit systems to grow their small-scale enterprises. They rely on the goodwill of their suppliers to get stock for their businesses and settle the payments later.

This is a perfect model that SMEs should adopt and bypass cash on a delivery payment basis. Adapting this model ensures that the SME’s fundamental challenge of cashflow is managed better.

But this model works on the principle of trust and honouring your due obligations on time.

According to a 2019 study in Zimbabwe, supplier mistrust was listed among the top factors affecting SMEs’ growth and business formalisation.

Therefore, if you want this model to work to your advantage, ensure you pay your suppliers as agreed upon in the signed-up delivery contracts.

This will help the supplier to have the cash to produce the needed products and supply your orders promptly too.

Equally important, honouring your obligations will save you costly lawsuits resulting from aggrieved suppliers.

It does not make sense to waste a huge chunk of your capital in settling a lawsuit.

In 2015, Nakumatt supermarket, a regional franchise operating in East Africa, was dragged to court for failing to pay its suppliers. This should not be an ideal situation for any SMEs.

A court process, because it costs a lot of money, time, and damages your reputation, an SME should do everything to avoid treading that lane.

Make a background check on every supplier

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Background checks should not only be adhered to by companies during staff recruitment.

It should equally apply when dealing with suppliers in your business transactions.

As an SME, you have no luxury of bringing on board a mediocre supplier who will destroy your market by supplying substandard products or who will delay product deliveries.

Time is money, so a supplier who will fail to deliver on time, and consistently, is not worth your partnership.

It is even worse when you fail to do due diligence, and the supplier you are dealing with is very economical with the truth; one who is likely to take any available opportunity to cheat.

Always evaluate the risks of dealing with each supplier: establish their genuineness through references, and assess their expertise. How about fair pricing? These are important issues to know before you commit yourself to anyone. Remember, price is what you pay, value is what you get.

Technology should be your friend

Technology is increasingly making life much easier and cost-effective for many SMEs in the long run.

In East Africa, for example, it is now possible to sit in the comfort of your office and monitor your goods move from Mombasa in Kenya to Kampala in Uganda.

Tracking your goods is important because it facilitates decision making, making it much easier to provide real-time solutions in case of any eventualities. Therefore, investing in the requisite technology should be part of the strategies you should deploy in managing your relationship with the suppliers.

All said and done, as an SME operator, always endeavour to meet your contractual obligations to the suppliers on time to avoid pitfalls such as piled up debt, compromised integrity, and expensive lawsuits, all of which could lead to a total collapse of your company.