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4 Common Purchasing Mistakes Small Businesses Make

26 March 2018 No Comment

It’s perfectly normal for small businesses to make some mistakes as they go. However, some mistakes are costlier than others, while others are very preventable. And when it comes to purchasing, they can be both. Let’s discuss some of the most common purchasing mistakes small businesses make. We’ll also discuss how to minimize the risk of making mistakes, so you can protect your bottom line.

Making Decisions out of Emotion or Relationships

Making major decisions based on your feelings at the moment is the great mistake. Don’t let someone make a purchasing decision based on how much they like or sympathize with the sales rep. Impulse buys, too, are a mistake. Sometimes, we may start to build a bond with a particular vendor because of previous positive experiences, but in other cases, vendors may not be able to compete.

Having a long-term relationship with a vendor can be a great thing. However, it is a major mistake to be loyal to a vendor regardless of price, quality, or level of service. Your vendors should earn your business by providing a product or service at least comparable to their rivals. If they’re giving you a better deal on price or add-on services or they’re providing a higher level of customer service, then you can be loyal to them.

However, you should be wary of any vendor who is offended if you go out for bids. In fact, you may find that they are overcharging or not keeping up with market expectations. The information you’ve gathered from the bids could become a starting point for negotiating a better deal with the current supplier.

Not Checking the Freight

Another common purchasing mistake businesses make is failing to consider the costs associated with the delivery of the item. They may buy an item based on the lowest per-item or price per lot but pay more overall than the slightly more expensive vendor who provides free shipping.

Failing to research your options for shipping products is also a mistake. You can negotiate freight charges like any other service, but many small businesses fail to negotiate at all. You could and should research other options for shipping your product, such as shipping via a different route, breaking loads into smaller shipments, or sending your product in fewer, larger batches.

Another error is not appreciating the extra costs associated with expedited delivery. A lack of planning on your part can literally cost you here. However, that could be solved by better planning your orders so that there’s more time for it to arrive by the time you need it.

Not Holding Vendors Accountable for Their Quote

A price quote is the start of your business relationship, and it is typically the basis on which you sign a purchase agreement. If vendors throw in extra surcharges or deliver later than the terms they quoted, you should take them up on it.

This could take the form of demanding they cancel the extra charges, give you a partial refund based on costs you incurred because of their delays, or cancel all orders with them as punishment. And beware of bargains that aren’t, like open-ended quotes that give them leeway to attach as many extra costs as they want.

In that case, they aren’t violating the quote, but it does create problems for your organization. That problem is solved by asking for references followed by checking them and researching the company regarding its ability to deliver what it promises. And doing your research can save you the hassle of doing business with a firm that doesn’t honor its quotes in the first place.

Not Formalizing Purchase Orders

Your purchase order is the last official document between you and the vendor. It gives the terms that you’ve agreed to such as the price, schedule, and features of the product. If it isn’t in writing, it isn’t a legal requirement.

A failure to put key terms in the purchase order means that the vendor may not have to meet the promises made during negotiation, which weren’t part of the price quote. The solution is to have a formal purchase order for every order. You can always get a free printable purchase order template online for use with your business. Then save copies of every purchase order in case you need it to defend yourself later.

Conclusion

Small businesses tend to be run less formally than big ones. A failure to spell everything out and get it in writing can literally cost you a small fortune. Relying on informal relationships and emotion as the basis of business relationships can create problems as well.

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