How to manage suppliers

business.gov.au describes a supplier as a business that sells you the materials, products or services you need. That includes stock and materials, and also services such as banking and financial services, utilities, property services, internet and phone, and insurance.

Managing suppliers runs from choosing them, through agreeing terms and working with them day to day, to reviewing whether they still suit the business. Paying their bills is part of it, and our guide to accounts payable covers that step. This guide covers the rest.

Keep one record for each supplier that everyone in the business works from. It might hold:

• the supplier's legal name, trading name and ABN
• contacts for orders, accounts and problems
• payment terms and how you pay them
• bank details, with a note of how and when they were confirmed
• your account number with them, if they give you one
• the current price list or agreed prices
• the agreement, with its start date, end date and any notice period
• notes on performance and any disputes.

business.gov.au lists supplier details, such as supply agreements and supply prices, among the information to have organised when valuing a business. A tidy supplier file is useful long before then.

business.gov.au suggests comparing potential suppliers on price, reliability, size, time in business, location and sustainability. It cautions that a low price isn't necessarily good value, since passing poor quality on to customers can damage your reputation.

Before you sign a contract or place a first order, it suggests these basic checks:

• see what the supplier's existing customers say in online reviews
• ask for references and speak to some of the businesses it already supplies
• look the business up on the Australian Business Register to check it is properly registered
• check the Personal Property Securities Register for any security interest over the goods it would supply.

Record the checks in the supplier file, with the date, so you know what was confirmed and when.

business.gov.au suggests a written contract for supplier terms, so each side's rights and duties are clear and there is less to disagree about. It suggests the contract cover:

• the goods or services to be supplied
• price and payment terms
• timeframes and delivery terms
• quality standards and warranty periods
• insurance responsibilities
• how disputes are resolved
• termination and exclusion clauses.

It also suggests negotiating outcomes both sides are happy with if you want to keep doing business together. Our guide to negotiating payment terms covers the payment part of that conversation.

business.gov.au suggests keeping track of your suppliers' performance. Your own records already hold most of the evidence: the purchase order shows what you asked for, the delivery docket shows what arrived and when, and the bill shows what you were charged. A short scorecard each quarter turns that into something you can compare.

Supplier B stands out: deliveries are often short or late, bills often don't match, and prices changed without notice. That is the conversation to have first, with the scorecard and the documents behind it in hand.

business.gov.au's tips for good working relationships include setting regular times to talk, communicating openly, raising problems early, agreeing a standard ordering process, paying your accounts on time and avoiding changed or rushed orders. It also reminds businesses that they are one of a supplier's many customers, so some patience helps when a need isn't met straight away.

Many supplier disputes turn out to be misunderstandings. business.gov.au suggests checking the facts, including reading your written contract, then talking the issue through with the supplier and listening to their side. Keep records of your communication, since you may need them later. If that doesn't work, a more formal letter setting out your concerns is a next step.

If an issue still can't be resolved, business.gov.au lists the Australian Small Business and Family Enterprise Ombudsman, your state or territory consumer protection or fair trading agency, and your state's small business commissioner, where there is one, as places that may be able to help.

Look over the supplier file and scorecards at least when an agreement is due to end. business.gov.au lists common reasons to change supplier: better value elsewhere, a need to reduce spending, a business that has outgrown its supplier, a supplier closing or no longer stocking what you need, or a contract coming up for renewal.

It also cautions that a new supplier means building trust from scratch, and that renegotiating with the current one can sometimes cost less. When you do switch, update the supplier file, close the old supplier's account once its last bill is paid, and check that any credit it owes you has been refunded or used.