A small business can gain a tremendous advantage by becoming a supplier to the government or a large corporation. It could be just the break that you were looking for. But you need to proceed cautiously. One of the first steps that you must take is to ensure that you sign a vendor agreement.
This is a legal document that you must enter into with the organization that is buying your goods or services. The vendor agreement lays down the terms and conditions of the arrangement and provides both the buyer and seller with the assurance that each of them will honor their commitments. In this article, we’ll discover what a vendor agreement is (also called “supplier contract” or “supply contract”) and what you can do as a small business owner to get one. It could be what your business needs to grow exponentially and achieve long-term sustainability.
Can a small business become a supplier to larger companies?
Most small business owners are continually looking for new ways to expand. You could do this by opening up new markets, diversifying your product range, or expanding your geographical coverage. But one of the quickest ways to increase your sales volumes is to become a supplier to a large organization.
The manufacturing and production of all kinds of goods is increasing in the U.S.: energy costs usually are lower here compared to overseas, labor cost is increasing abroad, and logistically it’s easier to cover the whole production process within the U.S. This is great news for the U.S. economy and especially for the small business community. Taking advantage of this situation and becoming a supplier to a big company can be a game-changer for small businesses. According to the SBA, when a small supplier lands a contract with a larger company, its revenues increase in the region of 250 percent and they create 150 percent more jobs in only two to three years
Of course, reaching this level this requires special effort on your part. You probably won’t be able to sign a big contract with a larger company overnight, especially if it is with the government or with a Fortune 500 company –those among the 500 largest corporations in the U.S. It could take weeks or months of hard work, but the rewards are great. A single deal could result in a significant increase in sales and help you to take your company to the next level.
Many entrepreneurs would like to learn how to get supplier contracts with large companies. The first step that you must take is to ensure that you will be in a position to fulfill your promises.
It’s no use bagging a big contract if you don’t have the capability to execute it well. Before you take the plunge, make sure that you can quickly ramp up your production and adapt your infrastructure when the need arises.
Entering the Big League – How to Get sign a Vendor Agreement with a Large Company
Are there any specific steps that you can take to increase your chances of entering into a vendor agreement with a large buyer? Here are some of the easy-to-follow tactics that you could consider adopting:
- Make sure that your business card looks professional. It should contain your street address as well as your contact details. Consider getting a company email address. The procurement executive that you are dealing with will not be very reassured if you provide a generic Gmail address.
- Think about signing up for the American Supplier Initiative (ASI), backed by the SBA. The U.S. Small Business Administration (SBA), is a United States government agency that provides support to entrepreneurs and small business owners. The ASI helps small businesses access some of the largest corporations including AT&T, Kellogg’s, Caterpillar, John Deere, Siemens, and IBM. Their services help small businesses market their services and present their products and services. For the buyer, the process of sourcing suppliers becomes easier and faster.
- Get your financials in order. If a big corporation is going to sign a vendor agreement with you, they are likely to carry out a credit check. If you have a poor score, it could affect your chances of winning the contract.
- Be conveniently prepared: you’ll need to be ready with scalable technology, equipment, appropriate insurance and solid and actionable plans for rapid expansion.
- Why should a large company sign a vendor agreement with your firm and not with one of the dozens of other eligible small businesses? You have to be able to convince the buyer of your capabilities. Think of ways in which you can persuade the procurement executive that your firm offers the best option.
- It’s important to under promise and over deliver. If you have signed a vendor agreement with a large firm, you must do everything within your control to keep the commitments that you have made. Supplying poor quality goods or missing a delivery deadline is the surest way of losing a contract.
- Signing a vendor agreement with the government or a Fortune 500 company is going to take time. You need to be patient and follow up regularly with your prospective buyer.
Benefits of entering into a vendor agreement
When a small business signs a vendor agreement with a large buyer, it’s a win-win for both.
The buyer can benefit from lower prices, a diversified supplier base, and the opportunity to help the local community. There are several advantages for you as an entrepreneur as well. A large client could provide a private company with a steady source of business in addition to higher sales volumes. Even if the profit margins are a little lower, you are assured of a constant flow of orders.
Entering into a vendor agreement with the government or a large corporation has additional benefits: you can be reasonably sure that you will receive the payments that are due to you in a timely manner. The amount that you are owed may form a significant part of your sales, but still, it is a relatively small sum for the buyer.
The importance of creating a supplier contract
Each clause of the supplier contract, which is also referred to as the vendor agreement, has a specific significance. Carefully read the agreement that you will be signing. You must ensure that your interest as a seller is wholly protected.
What are the provisions that are usually included? How can you make your vendor agreement “bulletproof”?
- The agreement should provide a description of the goods that you will be supplying or the services that you will be rendering.
- A crucial component of the vendor agreement is the payment clause. When will the payment become due? How will the payment amount be calculated? What are the late payment penalties? The vendor agreement should address all these issues.
- There should be another clause that addresses the issue of the term of the agreement. How long will the vendor agreement last? Do the parties have to provide a notice period if they wish to terminate?
- There will be other clauses as well, detailing the responsibilities of both parts involved. One point worth mentioning is that the agreement will usually specify that the vendor is an independent contractor and does not have the authority to act on behalf of the other party.
Use these templates to check how a vendor agreement looks like: this is a sample of a general vendor contract (Source: Template.net), and this is a sample of a catering contract (Source: Template.net).
What happens in the event of a dispute?
What if there is a disagreement with the buyer? What should you do?
It’s advisable to avoid going to court over the dispute. The legal expenses will quickly add up, and the process could also take up a lot of your time. Instead of concentrating upon your business, you’ll be worrying about the next court hearing.
However, it’s important to familiarize yourself with the laws that govern vendor agreements. Remember that these agreements are subject to both federal laws as well as state laws.
How does that work? Some issues are decided at the federal level. For example, you can’t enter into a contract to do anything illegal. Other matters fall under the state’s jurisdiction. So, if there is a disagreement with the buyer about the interpretation of the clauses in the vendor agreement, the state laws could apply.
Consider getting your vendor agreement drafted or reviewed by a CPA. The advice that you receive could be of great help if there is a dispute with the buyer.
The bottom line
Your small business can benefit immensely by becoming a supplier to the government or a large company. The advantages could include growth in sales and higher profitability.
But there are many potential pitfalls in tying up with a big organization. Remember that instead of interacting with a single decision maker, you may find yourself up against a complicated bureaucracy. How will you deal with such a situation?
Signing a carefully drafted vendor agreement can help. This will ensure that both parties are aware of their responsibilities and duties. It could also prevent disputes from arising.
Do you want regular inputs on the best ways to run your business? Join our community of over 30,000 entrepreneurs and subscribe to our newsletter to receive a free online publication every week on topics that range from business funding, management, and technology, to specific tips on maximizing your profits.