An extreme example maybe, but what do you do when a customer wants payments terms that are longer than you can live with? Here are a few options.
- Increase the price. If the customer has a cash flow issue (and you can live with the risk) then you can increase the price to allow for the delay.
- Play the small business card. “We are a small business and we can’t afford to finance you”. If it’s a large company, they will often have an ethics document published on their website and it will likely give you great material to beat them over the head with.
- Play the diversity card. More or less as above, but tuned for diversity.
- Adopt a cash neutrality policy. Cash neutrality is the idea that no-one makes money across the value stack – everyone gets paid in 30 days, including your suppliers. Having a policy of cash neutrality allows you to take the moral high ground.
- Payment terms are not the only lever. See if you can address the payment terms issue by offering additional value (no cost or low cost to you, high value to them). You might then be able to trade better payment terms by putting in place what is effectively a discount.
The overall key in most situations (but not all) is the SSSU – Sales Side Set-Up. The SSSU has been covered in previous Oh Lawdys! but, in essence, it’s the practice of making it clear to customers that price, payment terms and legal terms are an integrated whole. Any adjustments to one factor (such as payment terms) has an impact on parts of the whole.
Read the inspiration for this Oh Lawdy! from Blair Enns here.