Four Ways to Tap into the Big Contract Market
Large firms and government agencies are carving out a space in their supplier ecosystem for small businesses. But how do small businesses stack up against larger competitors? Risk can often outweigh the cost benefit as a purchasing factor and you need to be able to prove that though you’re small, you’re still a safe choice.
When an organization sends out a bid to a number of vendors, how can your small company outweigh the competition? Customer service is a point of entry, but proving financial stability during the procurement process can be the differentiating factor or a red flag for potential buyers.
Managing business credit and protecting your company’s financial health is an ongoing process – one that should be top of mind for any small business owner. As your company vies to partner with large firms or the 23 percent of Federal government contracts earmarked for small business, here are four ways to ensure there are no deal breakers:
Establish business credit – A small business owner’s first step in selling to large organizations or government agencies is to file for a DUNS number. This identification is used by the world’s most influential associations – including the U.S. federal government, the SBA and the UN. Walmart requires a DUNS number from all suppliers. Even Apple requires one to participate in their volume purchase program. Familiarize yourself with the contents of your business credit file and keep the information up-to-date. This is often the first measure taken to vet business credibility.
Separate personal and professional – In addition to requesting an accessible company profile, buyers want to see positive past payment performance. Although this may be initially difficult for self-funded companies, opening a line of credit under your business’ name is critical.
It can serve as a credible banking reference, helpful in securing credit from large companies and establishing a “willingness to pay.” Even if it begins with something as small as a phone line, it could lead to lower interest rates and better payment terms from vendors.
Stabilize cash flow – By monitoring customers’ and vendors’ credit, you’ll be in a better position to manage your own cash flow. Dun & Bradstreet’s most recent U.S. Business Trends Report found the percentage of delinquent dollars to be only slightly lower now than during the peak of the recession.
Making smarter credit decisions about your customers starts with creating and sticking to a policy. To help stabilize cash flow and drive customers to increase spending, small businesses should:
- Develop a process for gathering information needed before extending credit
- Put in place a maximum line of credit for each customer
- Offer early payment discounts and establish clear penalties for late payments
Reassess internal and external performance – This sounds ridiculous to have to say out loud, but continue to monitor your own commercial credit file. D&B data shows that one in three businesses experience decline in their credit score in just over a three-month period.
Your ability to respond quickly to the behaviors of partners in your ecosystem is equally important. The volatility born out of the recent recession has not yet let up, with 12 businesses filing for bankruptcy every 60 minutes, so keeping a vigilant watch and taking immediate action is essential.
Small businesses are the foundation of our economy, with over 23 million SMBs employing nearly 81 million workers and producing annual sales in excess of $6 trillion. However, they face a number of challenges making them more vulnerable to financial risk. By being proactive about protecting your company’s financial health, you are laying the foundation needed to exploit growth opportunities. It will make the difference between surviving and thriving in the economic recovery.