How to negotiate payment terms
How to negotiate payment terms that work best for your business financesFor small businesses in the current climate, being able to hold onto as much of their money as possible is often integral to financial survival.
In order to hold onto their own money they need to negotiate with their suppliers and their customers as to just what kind of terms they can use to pay out and receive money. Figuring out how to negotiate payment terms is really about finding out a way to talk to companies and people that you have financial dealings with and finding a happy medium that will suit you and those you are working with.
The main term that needs to be negotiated are the actual timing for remittances, in other words how many days, weeks or months are allowed before compensation for goods or services is remitted. Another factor is the event that actually triggers a cash exchange. This can be receiving the good or the service being provided. Payment can also be given before delivery depending on how the agreement is worked out.
The final term in most agreements of this nature is the requirements for making or receiving remittances. This can mean that you have to receive a receipt or it just means that you have agreed to pay fully once the contract is fulfilled.
When it comes to collecting money from customers there are several different ways you can come up with terms that are best for you.
Most people understand that the industry standard for payment time is "net 30 days." Industry standard means that you expect money for your goods or services at the most, 30 days after you provide your goods or services. The best way to negotiate better payment terms than this is at the beginning of a contract.
When you pick up a new client or customer you can easily lay out that you require remittance earlier than 30 days. When you have this kind of an agreement, the terms can be anything you think is reasonable and what the customer will agree to pay. Your customer might simply agree to the terms you lay out, but more than likely they will balk at anything other than the industry standard.
Here is where the real negotiations begin and where the payments can be laid out.
The key to good negotiations is to find a solution that keeps both sides happy. There may not be the perfect solution out there but negotiators should be able to find common ground. This can mean longer payment terms with interest beginning once the 30 day threshold has been crossed.
Shorter payment terms with discounts for customers who pay in full before their bill comes due work as well.
The negotiations come down to asking the question as to whether you can trust the person or people you are negotiating with. This doesn't mean you have to be able to trust them beyond a business contract, but you should be able to believe that when terms are arrived at, both sides will honor those terms. The key is to find a price and a time limit that you can live with and that your business can operate under. The same goals are held by the people you are negotiating with on payment terms.
Be willing to give a little when looking at the bottom line. You want your company to be as profitable as possible but that does not mean that you need to get the best payday possible with every contract. Working with customers and providers alike makes your business stronger in the long run because those people know you are looking to be reasonable. Negotiations will go smoother once you have shown that you are reasonable from the start.