Starting a low voltage business, part 8: suppliers, manufacturer accounts, and credit

The previous post covered the written safety program and what it costs to maintain. This one covers the supply chain behind the work: who the company buys from, which manufacturer programs are worth joining, and how a new company pays for material before customers pay the company.

A low voltage contractor is only as reliable as its supply chain. The best estimate does not help if the equipment cannot be purchased at a competitive price, delivered on time, or paid for without draining the company's cash. Building relationships with distributors and manufacturers, and establishing the credit to buy from them on terms, is a core part of setting up the business. Like most of the topics in this series, it takes longer than new owners expect.

What this post covers

• A distributor mix. Two or three primary distributors for most of the product base, plus specialty and online accounts for what they do not stock. Premium convenience suppliers stay for emergencies.
• Manufacturer tiers. Why programs are tiered, using the Axis Authorized, Solution Silver, and Solution Gold levels as the example.
• What a program commits the company to. Volume, certified technicians, and the travel and wage cost of in-person training.
• Business credit. A DUNS number, a thin credit file, which suppliers to apply to first, personal guarantees, and a business card as a short-term bridge.

Building your supplier network

No single supplier carries everything a low voltage contractor needs, at the best price, with the right availability. Spreading purchases across too many suppliers works the other way. Distributors reward volume with better pricing, stronger relationships, and more favorable credit terms. The useful target is a deliberate mix.

Primary distributors

Start with two or three large distributors that together cover most of the product base. For low voltage, security, and structured cabling contractors, that typically means companies such as:

• Graybar, strong in structured cabling, electrical, and communications products
• ADI Global Distribution, a major security distributor that now also includes Snap One's audio, video, and smart building lines
• Wesco, which acquired Anixter and carries a broad range of communications, security, and electrical products

These distributors offer local branches with will-call counters, delivery, dedicated account representatives, project quoting, and, eventually, credit terms. Most also structure their pricing in tiers based on purchase volume. Concentrating the majority of purchasing with them builds the volume that earns better pricing and the relationships that pay off when a rush order or a difficult project needs a favor.

Specialty suppliers

Next, establish accounts with a few specialty suppliers that carry the products the large distributors do not stock or cannot easily source. Examples include:

• ScanSource and TD SYNNEX, which distribute technology products and manufacturer lines that may not be available through electrical and security distributors
• IML Security Supply and similar security-focused suppliers, which often carry door hardware, locking devices, and access control components that general distributors do not

Some specialty distributors sell only to authorized resellers or require additional documentation before opening an account, so the account is opened before a specific product is needed.

Online suppliers

Online suppliers fill gaps quickly, especially for small orders, replacement parts, and hard-to-find components. Useful examples include:

• GoKeyless, for door hardware, locks, and access control components
• Signamax, for structured cabling and connectivity products
• Digi-Key, for electronic components, relays, connectors, and test accessories
• Grainger

Grainger stocks an enormous range of products with fast availability, which makes it valuable when a job cannot wait. That convenience comes at a premium, and routinely buying from Grainger what a primary distributor could supply erodes margin. An account stays open for emergencies and unusual items rather than everyday purchasing.

Amazon Business

For office supplies, shop consumables, and general items, an Amazon Business account is worth setting up. If the owner already has a personal Amazon Prime membership, it can be linked to a free Amazon Business account so Prime Business Duo is available at no additional cost. That extends business benefits such as free delivery and purchasing tools to the business account. The business account is created with a different email address than the personal account, and the Duo plan applies to single-user business accounts. Keeping business purchases in a separate account also supports the separation of business and personal finances discussed in Part 2.

Manufacturer accounts

Some products can be purchased by anyone through a distributor. Others can only be sold and installed by authorized dealers, integrators, or partners. Becoming an authorized partner with the right manufacturers gives a contractor access to their products, better pricing, project registration and price protection, technical support, warranty support, and training. It can also be what qualifies the company to bid on projects that specify those products.

Manufacturer accounts are a selective choice, and only after the program agreement is read. Every program is different, and some carry obligations that are difficult for a new company to meet.

Most programs are tiered

Nearly every manufacturer, and many distributors, structure their partner programs in tiers. Entry-level tiers are designed to be accessible, with minimal requirements and basic benefits. Higher tiers require more from the partner, such as certified technicians, demonstration equipment, and revenue commitments, and in return offer better pricing and more support. The more of a manufacturer's product a company sells and supports, the better its pricing and benefits become.

The Axis Communications Channel Partner Program is a clear example. It has three levels:

A new partner enters at the Authorized level, where requirements are minimal and no revenue commitment applies. Moving to Silver and Gold brings requirements for certified staff, demonstration equipment, and revenue commitments, along with benefits such as dedicated pre- and post-sales support, prioritized technical support, prioritized lead sharing, and larger discounts on Axis training courses. Axis also supports its distributors with partner rebates that depend on the partner's level, so pricing improves as a partner advances.

Tiered programs matter for more than day-to-day margins. When competing for larger projects, a contractor at a higher tier can often obtain better project pricing and stronger manufacturer support than a competitor at the entry level. A company that builds its standing with a few manufacturers over time has an advantage when the bigger opportunities arrive.

Understand the commitments before signing

The question to answer before joining any manufacturer program, or advancing to a higher tier, is what the company will be required to commit to.

• Sales volume commitments. Some programs, such as Axis at its entry level, do not require a revenue commitment. Others require the partner to purchase a minimum volume of product each year, sometimes from the first tier.
• Consequences of missing quotas. Companies that fail to meet their commitments can be dropped from the program or moved down a tier. A manufacturer may allow some leniency in the first year while a new partner builds its business, but by the second year it will typically expect to see sales. Losing a program can mean losing the ability to purchase, support, or warranty that product line, which can affect existing customers as well as future bids.
• Prerequisites for admission. Many manufacturers require new partners to provide account numbers from their authorized distributors, and some also require verified purchase history for certain products before they will admit a partner. For a new company, that can mean buying and installing product through a distributor for some time before becoming eligible for the manufacturer's program.

The program agreement is the document to read, and the manufacturer's regional sales representative is the person to ask what is required to join, to advance, and to remain in good standing.

Certified technician requirements

Many manufacturer programs require a specific number of certified technicians on staff, either to join the program at all or to reach higher tiers. The requirement varies considerably:

• Some manufacturers, including Axis, recommend certification at the entry level and require it only to advance to higher tiers.
• Others, particularly in access control, require two or three certified technicians before a company is allowed to sell their products. LenelS2, for example, sets requirements for the number of certified technicians a dealer must maintain.

For a small company, a requirement for multiple certified technicians can be one of the most significant barriers to a manufacturer program, both because of the cost of certification and because the company must employ enough qualified people to meet it.

Plan for the cost of training and certification

Certification requirements come with real costs, and access control manufacturers in particular often require significant investments of time and money.

Training costs vary widely. Some certifications cost a few hundred dollars and can be completed online. Others cost as much as $10,000 in course fees alone. Some manufacturers offer training only in person, at facilities in major cities such as Los Angeles, Chicago, or New York. Higher program tiers sometimes reduce these costs. Axis, for example, offers larger training discounts to partners at higher levels.

When training is in person, the true cost includes much more than the course fee:

• Airfare, lodging, and meals, often for a week or more
• Wages paid to the technician while in training
• Lost billable hours, since the technician is not working on paying jobs
• Any required prerequisite courses or recertification

Depending on the manufacturer and its requirements, a single certification can easily cost a company $10,000 to $20,000 once all of these are included. Multiply that by the number of certified technicians a program requires, and the investment in a single product line can be substantial. As discussed in Part 5, those costs belong in the company's overhead planning. The decision to pursue a manufacturer program is weighed against the work that line will realistically produce.

One more consideration: manufacturer certifications are frequently tied to the dealer account rather than to the individual technician. If a certified technician leaves the company, the company may fall below the program's certification requirement, and the technician's certification may not transfer to a new employer. Maintaining more certified people than the minimum on critical product lines reduces that risk.

Choose lines deliberately

It is tempting for a new company to sign up for every program it can in order to bid on as many projects as possible. That approach usually backfires. Each program adds training costs, certification requirements, sales commitments, and administrative work, and a company that spreads itself too thin will struggle to meet its obligations to any of them or to advance in any of their tiers.

A small number of manufacturers that fit the markets the company intends to pursue, that it can support well, and whose commitments it can realistically meet, is the workable set. Concentrating sales with those manufacturers is also what moves the company up their tiers. More lines are added as the business grows.

Establishing business credit

Credit terms allow a contractor to purchase material now and pay for it later, which is essential in an industry where, as discussed in Part 1 and Part 5, customers may not pay for 30 to 90 days. Establishing that credit takes time, and the early terms are rarely generous.

Get a DUNS number first

Before applying for credit, most businesses need a DUNS number, a unique nine-digit identifier issued by Dun & Bradstreet that establishes the company's business credit file. Many distributors and lenders look for it when evaluating a credit application.

A DUNS number is free. Standard processing can take up to 30 business days, although many applicants receive their numbers sooner, and Dun & Bradstreet offers a paid expedited option for businesses that need one quickly. The application goes in as soon as the business is formed so the number is ready before credit applications begin.

Start with a thin file

A new business starts with no credit history, often called a thin file, the same position as a first credit card. Business credit bureaus, including Dun & Bradstreet, Experian, and Equifax, build a company's credit profile over time from its payment history with suppliers and lenders. Until that history exists, creditors have little to base a decision on, and they typically respond with small limits, strict terms, or additional requirements.

Apply in order of importance

Rank suppliers from most used to least used, and apply for credit in that order. The primary distributor, such as Graybar or ADI, is where the company will spend the most money and where credit terms will make the biggest difference to cash flow, so that application comes first.

A typical credit application will ask for:

• The business's legal name, structure, EIN, and DUNS number
• Bank references
• Trade references from other suppliers that have extended credit to the business
• Information about the owners

A new business will have few, if any, trade references, which is another reason to start early and build gradually.

Expect a personal guarantee

For a new business, most distributors will require the owner to sign a personal guarantee, making the owner personally responsible for the account if the business cannot pay. As noted in Part 2, a personal guarantee applies regardless of whether the business is an LLC or corporation, so the terms are read carefully before signing.

Because the business has no history, the owner's personal credit carries significant weight. An owner with poor personal credit may be denied credit entirely, and every order is paid up front until the business builds a history of its own.

Build credit over time

Business credit is built the same way personal credit is: slowly, and through consistent, on-time payment. In the early stages, expect modest credit limits and less favorable terms. The file gets stronger when:

• Every invoice is paid on time, or early. Payment history is the foundation of business credit.
• The company asks whether suppliers report to business credit bureaus. Not all do, and only reported payment history builds the credit file.
• Increases are requested after a track record is established. Once the account has six to twelve months of reliable payments, the account representative is the person to ask about a higher limit or better terms.
• Each new account is used as a reference. Every supplier that extends credit becomes a trade reference for the next application.

A business credit card

In the early years, a business credit card can sometimes serve a new company better than supplier credit. Banks are often more willing to extend a workable credit line to a new business than distributors are, particularly when the owner has strong personal credit. A card can be used across multiple suppliers, provides a grace period between purchase and payment, and may offer rewards on material purchases.

A card paid in full each month is a short-term bridge while supplier credit is still being established. Business cards commonly require a personal guarantee as well, and a balance at credit card interest rates consumes a project's margin.

Credit is a tool for timing, not a source of profit

Even the best credit terms only shift the timing of payments. If a supplier expects payment in 30 days and a customer pays in 60, the company still needs working capital to cover the difference. Credit works alongside the working capital planning described in Part 5. It is not a substitute for it.

Bringing it together

A supply chain is built deliberately. Most purchasing is concentrated with two or three primary distributors to earn better pricing and stronger relationships. Specialty and online suppliers cover the products those distributors do not carry. Premium suppliers stay reserved for emergencies. Manufacturer programs are approached selectively, with a clear reading of their tiers, certified technician requirements, commitments, and training costs before signing, and sales are focused on a few manufacturers so the company can advance in their programs. Business credit starts early: a DUNS number, applications to the most important suppliers first, a personal guarantee on the early accounts, and a history built one on-time payment at a time.

Like licensing, insurance, and the EMR, supplier relationships, manufacturer standing, and business credit cannot be rushed. The companies that start early are the ones with competitive pricing, reliable terms, and manufacturer partnerships in place by the time the larger opportunities arrive.

Next in this series: banking, bookkeeping, and financing.

Planning and device counts are numbers. Those live on the calculators. Office takeoff, proposal files, and Bluebeam chests are a later storefront. The rest of this series is on the business setup page.

Sources

• Axis Communications: Channel Partner Program
• Dun & Bradstreet: Get a Free D-U-N-S Number
• NerdWallet: DUNS Number
• Amazon: Business Prime Duo free with Prime
• Amazon Business: Prime Business plans and benefits
• Resideo: Completes Acquisition of Snap One

Related on this site

• Starting a low voltage business, part 9: banking, bookkeeping, and financing
• Starting a low voltage business, part 7: safety programs and OSHA requirements
• Starting a low voltage business, part 5: building a working number for startup costs and overhead