Contracts and negotiation

Negotiation is won in the preparation. Know what you need, what the market price is, what the supplier's costs are likely to be, and what you'll do if you can't agree: your BATNA, the best alternative to a negotiated agreement. A strong BATNA (another good supplier ready to go) is your real source of power. Set a target and a walk-away point before you start.

Price is only one thing to negotiate. Payment terms, delivery, quantities, warranty, how prices change over time and who pays freight are all on the table. Trading things that cost one side little but matter a lot to the other is how both come away happier.

Payment terms say when an invoice is due. Net 30 means pay within 30 days. 2/10 net 30 means you can take 2% off if you pay within 10 days; otherwise the full amount is due in 30. On a $5,000 invoice, paying by day 10 costs $4,900. Paying 20 days early for 2% off is a very good return, so most finance teams take it when they have the cash.

Contracts come in a few kinds. Fixed price: the supplier carries the risk of costs going up. Cost plus: you pay the supplier's actual costs plus an agreed fee, so you carry the risk; it suits work that's hard to price up front. A framework (or blanket) agreement fixes prices and terms for a period, and orders are placed against it as needed. Most contracts also have a service level agreement (SLA): measurable promises, like 98% on-time delivery, with what happens if they're missed.

Buyers spend other people's money, so ethics matter. Declare any conflict of interest, such as a relative working at a bidder. Don't accept gifts or hospitality beyond your company's policy. Treat all bidders the same and keep their prices confidential. Bribery is a crime almost everywhere, and many laws reach across borders.