How to check a supplier's honesty without a fight?

Why do invoices from suppliers suddenly swell?

In March 2024, we analyzed purchasing costs at a manufacturing company in Tczew that had been ordering the same type of plastic granulate for 11 years. Over the last 18 months, their supplier had raised prices regularly every quarter, arguing this with the 'situation on world markets'. When we sat down with the numbers, it turned out that the market price of the raw material had fallen by 4.7%, while our client was paying 15.2% more than in January of the previous year. This was not a matter of inflation, but simply taking advantage of trust and a lack of control over price indexes. Suppliers often test how far they can go before someone says 'check'.

The problem is that in many medium-sized enterprises in Poland, purchasing is based on personal relationships. Mr. Marek has known Mr. Janek for a decade, so it feels improper to ask about the margin. Meanwhile, these 'good relationships' cost the company in Tczew exactly 42,840 PLN net per month in overpayment. This is an amount that could cover the lease of two new machines or fund bonuses for the entire production team. Actual state, not wishful thinking – that is the only basis for business talks that we recognize at the Pomeranian Audit Center. Without specific data, you are just another customer whose price per kilogram of raw material can be marked up by a few pennies.

The analysis of 347 supplier contracts that we conducted in the first half of 2024 shows a clear pattern: the less often a company asks about the cost structure, the faster its expenses grow. The record holder in our list overpaid for logistics services by 21.3% compared to average market rates in the Gdańsk region. Remember that a supplier is a business partner, not a family member. Partnership requires transparency, and if it's lacking, it's a sign that your money is financing someone else's higher margin, not your development.

Actual state, not wishful thinking – that is the only basis for business talks that we recognize.

Three hard facts you must know before a meeting

Before you pick up the phone, you must have arguments in hand that cannot be dismissed with generalities about the crisis. The first data point is the market benchmark. It's not enough to know the competition pays less. You must know specific rates from at least 3 alternative sources from the last 14-19 days. At the Pomeranian Audit Center, we use our own database of transaction prices, which covers 487 entities from northern Poland. Thanks to this, we know that a ton of S235 steel in the port of Gdynia cost 115 PLN less last week than most wholesale price lists for regular customers state.

The second key indicator is the indexation of energy and transport costs. If a supplier claims they must raise the price because fuel became more expensive, check what real percentage transport constitutes in their product. Usually, it's from 2.4% to 5.8%. So a 10% fuel increase cannot translate into a 10% price increase for the entire product. This is simple mathematics that suppliers bypass widely, counting on no one breaking the price down into its component parts. Savings in black and white appear when you make them justify every tenth of a percent of a price increase.

The third element is your purchase volume over time. In 2023, one of our clients from Pruszcz Gdański realized that despite increasing orders by 37% during the year, his unit price hadn't dropped by a penny. In business, the principle of scale applies: you buy more, you pay less. If your supplier 'forgot' about this, then you have a powerful negotiating tool in your hand. Presenting a graph of your purchase growth set against a flat price line is the moment when the other side usually starts looking for room for a discount. Numbers speak for themselves and cannot be shouted down with emotions.

The open cards method in negotiations

Many entrepreneurs ask us: 'How do I say this to the supplier so they don't get offended?'. The answer is simple: don't attack the person, attack the numbers. Instead of saying 'you are cheating us', say: 'Our cost analysis indicates a deviation of 8.6% from the market average. We want to understand what this results from'. This is the approach of a professional who looks after their business, not a troublemaker. In May 2024, Mrs. Beata, the CFO of an FMCG company, applied this method during contract renegotiations for cardboard packaging. The result? A 6.2% price reduction in 22 minutes of conversation.

A good move is also to invite the supplier to look for savings together. Sometimes the price is high because you order goods in a way that is inefficient for the supplier – for example, too often in small batches. A process audit at the Pomeranian Audit Center often shows that changing the delivery schedule from 3 times a week to once a week allows the supplier to lower the price by 3.1% due to lower fuel and driver labor costs. This is a win-win situation, and you have a specific plan, zero fluff. You show that you care about optimization, not just 'squeezing the lemon'.

If, however, the supplier stubbornly claims that it cannot be done cheaper, despite hard market evidence, you must be ready for diversification. We do not suggest an immediate termination of cooperation, but introducing a so-called 'second leg'. In July 2024, we helped a construction company from Gdańsk move 27% of its orders to a new supplier from the Słupsk area. When the old supplier saw they were losing their monopoly, they suddenly found a way to lower the margin by 9.4%. Nothing motivates price honesty like the sight of competition in your own backyard.

Don't attack the person, attack the numbers. This is the approach of a professional who looks after their business.

Payment terms – your hidden capital

A purchasing audit is not only about the price per unit; it's also about the time in which you pay invoices. At the Pomeranian Audit Center, we check if your money isn't working for free for someone else. The market standard is 14-30 days, but with stable cooperation and high turnovers, negotiating 45 or 60 days is fully realistic. Why is this important? Because every day of delay in payment is a free working capital credit for your company. On average, our clients extend payment terms by 11 working days after an audit, which at a turnover scale of 500,000 PLN per month releases about 183,000 PLN of cash in circulation.

It's also worth paying attention to the cash discount, which is a discount for early payment. If you have financial over-liquidity, paying an invoice in 3 days instead of 14 can give you a 2-3% additional discount. On an annual scale, that's powerful money. One of our clients, the owner of an electrotechnical wholesaler in Gdynia, thanks to skillful use of cash discounts at 4 main suppliers, saved exactly 67,230 PLN in 2023. This is pure profit amount earned without selling a single additional item of merchandise. It was enough just to change the payment policy and watch the deadlines.

Remember that negotiating payment terms is often easier than negotiating the price itself. Suppliers who have liquidity problems will more willingly go down in price in exchange for a transfer in 48 hours. On the other hand, large corporations usually don't care whether you pay in 30 or 60 days – for them, the signed contract is what matters. An auditor from the Pomeranian Audit Center always starts by checking your cash flows to advise which strategy will pay off more in your specific case. Specific plan, zero fluff – that is our principle for every contract we examine.

How we checked a steel wholesaler in Starogard Gdański

The best proof of an audit's effectiveness is a specific example from November 2023. We worked with a company from near Starogard Gdański that deals with steel structures. They had 14 regular suppliers and a feeling that everything was under control. Our audit lasted 14 working days. We analyzed 1,138 invoices from the last two years. The result was surprising: two of the oldest suppliers, with whom the owner was on a first-name basis, applied price lists 13.8% higher than new players on the market who were trying to enter the same company with an offer.

We prepared a comparative report for the client, in which we showed the differences in prices for a kilogram of angle iron and square tube in black and white. Armed with this data, the owner met with the suppliers. There was no fight – there were facts. One of the suppliers immediately leveled the price to the market level, admitting that they 'forgot to update discounts after the drop in stock market prices'. The second supplier lost half of the orders to the competition, which motivated him to offer free transport worth 3,200 PLN per month. The entire operation brought the company savings of 114,600 PLN per year.

This case shows that an audit is not a one-time event, but a hygienic process for a company. Just as you do a technical inspection of a car every 10-15 thousand kilometers, you should do an inspection of your costs at least once every 12-18 months. At the Pomeranian Audit Center, we don't promise miracles; we promise a reliable check of facts. If your suppliers are honest, the audit will confirm it and give you peace of mind. If not – you will recover money that has been leaking from your account for years. The choice is yours, but the numbers speak for themselves.