Imagine you’re negotiating a deal with either a current or new supplier, and they dangle a tantalising carrot in front of you – it might be an upfront cash bonus, free equipment or a generous fund to help with upgrades to your business.
It sounds like a no-brainer, doesn’t it? Who wouldn’t jump at the chance to get something valuable upfront and for free? But here’s the kicker – nothing in business ever comes for free. Those incentives might feel like a win today, but they often come with strings attached – strings that can stretch into higher prices, stricter terms or inflexibility over the life of the contract you’re about to sign. This isn’t just a “buyer beware” moment – it’s about understanding what you’re really signing up for.
The allure of incentives
Suppliers are smart. We know that offering something upfront – whether it’s a cash bonus or shiny new equipment – can be a powerful motivator. It creates a sense of value, can reduce the immediate pressure of capital investment and builds that feeling of a win when the contract is signed. It’s easy to see why these offers are tempting. All businesses feel the financial pressure of their operations, and an incentive can feel like a lifeline. And let’s be honest, getting something for “free” is always hard to resist. But is it really free?
The long-term costs
The reality is that these incentives are rarely acts of generosity. Suppliers aren’t absorbing the cost of those bonuses or funds, they’re embedding these into the pricing structure they’ve just set out in the proposal or renewal of the contract over time. For instance, that $20,000 upfront bonus might look great on paper, but over a five-year contract, you could be paying it back (and then some) through higher chemical prices, decreased service, less personal attention or restrictive contract terms. Think of it like buying a house. Would you accept $10,000 cash from the seller, knowing it would add $30,000 to the mortgage? Probably not. Yet, in the world of supplier contracts, it’s easy to overlook the long-term ramifications in favour of short-term gains.
The legal and ethical side
In Australia, this practice isn’t just a question of fairness – it’s also subject to strict regulations. The Australian Competition and Consumer Commission (ACCC) requires transparency in supplier agreements, including clear disclosures about pricing, terms and any payments or bonuses that form part of a business contract. But even when these schemes are legal, are they ethical? Should suppliers be upfront about how these incentives are built into the price? What if your competitors are offered these types of incentives and a lower price, but you’re not? Where does this leave you? It’s a fine line, and not every supplier walks it with integrity.
Protecting your business
So, what can you do to protect yourself? Start by asking the right questions:
- What’s the total cost of ownership for this contract?
- How do the upfront incentives affect long-term pricing?
- Can you negotiate better terms without the bonus or equipment fund?
It’s also worth comparing the costs from multiple suppliers and analysing the terms over the entire contract period, not just at the point of signing. A supplier offering no incentives, but competitive pricing, improved service and generally adding value such as staff training and auditing of processes and procedures on a regular basis may be far more beneficial, and save you far more in the long run. Finally, don’t be afraid to seek legal advice before signing. An upfront incentive isn’t worth locking yourself into an unfavourable deal or an illegal minefield.
The big picture
Incentives can be a useful tool for both suppliers and customers, but they should never replace transparency and fairness. Before being swept up in the allure of a bonus, stop and ask yourself – what am I really paying for? At the end of the day, every business decision should be based on trust, value and mutual benefit – not just what looks good in the moment and a dollar sign. So, next time you’re offered an irresistible incentive, take a step back. Look beyond the immediate win and think about the bigger picture. Are you securing a genuine partnership – or just funding someone else’s bonus? If these final paragraphs resonate with you, perhaps it’s time to rethink how you’ll approach your next supplier agreement or renewal. At JayChem, we focus on delivering consistent value through competitive pricing, ongoing support and transparent contracts, without gimmicks – so let’s start an open and honest conversation about how we can work together.
By Brad Carruthers.