How to Get Vendor Discounts: 5 Key Negotiating Strategies

Strong vendor relationships can help your business do more than keep shelves stocked or operations running. They can also create opportunities to reduce costs, improve cash flow and protect your bottom line.

Vendor discounts are one of the benefits you could receive from building strong relationships. Some discounts are offered upfront, but others may only come when you ask the right questions and show that your business is a reliable, long-term partner.

What Is a Vendor Discount?

A vendor discount is a price reduction, rebate or other financial incentive a supplier offers a small business. They can include things like a discount for paying an invoice early, making a large purchase, signing a long-term contract, or just having a good customer relationship.

These discounts can help reduce your cost of goods, make procurement more efficient and free up cash for other needs. Even small discounts can add up over time, especially for recurring expenses like inventory, supplies, shipping, software or equipment.

Vendor discounts often create a win-win scenario for your small business and the vendor. Your small business saves money and the vendor gets predictable payments, larger orders or a long-term customer.

How to Negotiate Vendor Discounts

The key to negotiating vendor discounts is to come prepared and show why the discount makes sense for both businesses. Most vendors expect small business owners to ask about pricing, payment terms and ways to save. Here’s what you should know about negotiating a deal.

1. Know Your Numbers Before You Ask

Before you ask for a better deal, review your purchase history, average order size, payment habits and your future needs. This can help you provide context around asking for a discount. You can make a specific ask such as, “We spent $20,000 with your company last year and we’re expecting that to grow in the future. Do you offer any volume discounts or better payment terms available?”

Here are a few things to review before asking for a discount:

• How much you spend with the vendor each month or year.
• If you consistently pay your invoices on time.
• Which products, tools or services you purchase most often.
• Whether you expect to increase your order size or frequency.

2. Pay Early When You Can

Early payment discounts are one of the most common discounts that vendors offer. For example, a vendor may offer a small discount if you pay your invoice within 10 days instead of waiting until the regular due date. That discount may seem small at first, but it can add up if you buy from the same vendor often.

This can be an easy way to save money, but it requires some planning. It only works if your business has the cash to spare without falling short somewhere else. A business line of credit can help when things are tight. It can help you smooth out cash flow so you can take advantage of early payment discounts while providing the funds you need to cover your other operating costs. Just make sure the cost of borrowing doesn’t cancel out the benefit you get from paying early.

Here’s a few things to ask yourself before using an early payment discount:

• Will this discount save enough money to be worth paying early?
• Do we have enough cash available for other upcoming expenses?
• Will paying early affect payroll, inventory or rent?
• Do we buy from this vendor often enough for the savings to add up?

3. Commit to Larger or Recurring Orders

Some vendors may offer discounts for large purchases or recurring orders. When you order a lot of something, it’s good business for the vendor and it can help them have more predictable sales.

If you regularly order the same supplies or inventory items, you may be able to lower your cost per item. For example, if you’re a restaurant that regularly orders the same ingredients, an ecommerce store stocking up on inventory or a healthcare provider who consistently needs medical supplies, you may be able to get a better deal by ordering a larger quantity or by making it a recurring order.

Keep in mind that a bigger order isn’t always the right choice. Buying more than you need can tie up cash, take up storage space or leave you with inventory that does not sell.

Here are a few things to think about:

• Will we use or sell this inventory in a reasonable amount of time?
• Do we have enough space to store the extra items?
• Will the discount be worth the larger upfront cost?
• Could this order make cash flow tighter in the short term?
• Can the vendor offer flexible payment terms with the larger order?

4. Ask About Membership or Group Purchasing Programs

You may be able to get access to discounts through membership organizations, business groups or group purchasing programs, such as local business associations, industry groups, professional organizations or group purchasing programs. These types of discounts can be worth looking into, especially if you’re buying from a vendor for the first time or don’t have a long purchase history yet.

Here are few things to consider:

• Is there a cost to join?
• Do the discounts apply to vendors we already use?
• Could the savings outweigh the membership cost?
• Are there purchase minimums or contract requirements?

5. Build the Relationship, Then Negotiate

The discounts offered by vendors can often come down to trust. Having a strong relationship with your vendor can help you secure deals that may not otherwise be advertised. A vendor may be more willing to offer flexible payment terms, rebates, referral discounts or seasonal savings to customers they know and value.

Before asking for a discount, think about the relationship you already have with the vendor. Have you been easy to work with? Is your business tradeline in good standing? Do you pay on time? Do you order regularly? If so, those are all points you can bring into the conversation.

Types of Vendor Discounts

Early Payment Discounts

Early payment discounts reward businesses for paying their invoices early. A vendor may offer this because it helps them get cash sooner and spend less time following up on unpaid invoices.

These discounts can be useful if you buy from the same vendor often and have an accounts payable process that makes it easy to track invoice due dates. Over time, even a small discount can add up.

Volume and Bulk Purchase Discounts

Volume and bulk purchase discounts are based on how much your business buys. A vendor may offer a lower price if you order more at one time, reach a spending threshold or commit to buying a set amount over time.

These discounts can work well if you regularly need the same products or supplies. Just make sure the larger order is worth it. Buying more can lower your cost per item, but it can also tie up cash. If a bulk order requires more cash upfront, a business term loan may help you cover the larger purchase and repay it over time. Keep in mind that you’ll be paying interest on the loan, so you may need to do some math to figure out if it’s the right move for your business.

Loyalty and Long-Term Contract Discounts

Loyalty and long-term contract discounts are based on the relationship you build with a vendor. A vendor may offer better pricing if you buy from them regularly, renew a contract or agree to work together for a set period of time.

These discounts can be helpful for recurring expenses, like software, supplies, maintenance or professional services. Before agreeing to a long-term contract, make sure the vendor still fits your needs and the savings are worth the commitment.

Seasonal and Promotional Discounts

Seasonal and promotional discounts are temporary offers that vendors make during certain times of year. They may be offered around a holiday or when the vendor needs to move inventory.

These discounts can be a good way to save on purchases you already planned to make. The key is to avoid buying just because something is on sale. Make sure the purchase supports a real business need.

Rebates and Referral Discounts

Rebates. Rebates are a form of savings your business may receive after meeting certain purchase requirements. For example, a vendor may offer money back or account credit if you buy a certain amount over time. You’ll need to understand all the terms and keep track of what you’ve earned to take full advantage of this type of discount. Accounting software like Quickbooks can help you automate this, or you can keep track in a Microsoft Excel file.

Referrals. Some vendors may reward you for sending other customers their way. They may offer a discount, account credit or some other reward if someone you refer becomes a new customer. This can be helpful if you know other business owners who are in need of a good vendor.

Here’s how other business owners have leveraged vendor discounts.

Keep in mind that savings may take time.

“I’ve run a small commercial cleaning company in Connecticut since 1987, so going on 39 years. The honest answer about vendor discounts is that the ones that have actually saved us money aren’t dramatic. They’re slow.

We stick with the same suppliers for years. Not because they always have the lowest price, they don’t, but because we pay on time and we don’t bounce around chasing 5% off somewhere else. Over time that’s gotten us pricing we wouldn’t have access to as a new account.

A few practical things if it helps the piece:

Most suppliers have pricing tiers they don’t put on their website. You can sometimes get bumped up just by asking what it would take. We did that once and it changed our supply costs noticeably.

Don’t split your spend across three vendors to save a little on each item. You lose all your leverage. Pick one for each category and build the relationship.

The one a lot of small business owners miss is trade associations. The good ones negotiate group rates on insurance, equipment, even commercial vehicles. Worth checking what yours actually offers members.”

Alex Fraser, Vice President
Fraser Commercial Services, Inc.

Bundle and stick with the same vendors.

“As a small service-based business owner, my goal is to minimize administrative costs so I can invest more in client work. I’m always bargaining with my vendors for a price reduction. Usually, long-term business and upfront payment can get you an easy discount.

For the tech tools we use in my firm, such as our cloud storage, project management software, legal research system, etc., I buy a bundle subscription. For repetitive expenses, such as office supplies, printing, court reporting, etc., I go to the same vendor over and over to get a loyalty discount.

These little concessions add up and make a noticeable difference in the costs of a small business like mine. With the help of vendor discounts, I keep my admin costs as low as possible, minimize overhead expenses, and improve my work quality by investing in tools that improve my services.”

Edward Hones, Owner
Honeslaw