Getting paid on time is essential for your business’s cash flow. Payment terms dictate how and when you get paid, so ensuring they are appropriate can prevent late payments and unnecessary stress. Business transactions must include payment terms since they establish the cash flow cycle. These rules ensure that suppliers and vendors receive their money on time and that customers know when payments are due. The regulations that outline how and when somebody must pay the cost are what we refer to when we speak about payment terms.
Regarding accounts receivable (AR), payment conditions specify when you get paid. Payment terms often apply to paying suppliers and vendors about accounts payable. Learn how to optimize your invoice payment terms to receive timely payments without taking a hit on your working capital.
Negotiate Your Terms
The payment terms you set establish when your business will be paid and provide the framework for a successful working relationship with suppliers. They also influence how much cash is available to your company in the bank when you’re ready to pay an invoice. Many small and medium-sized businesses are reluctant to negotiate standard payment terms with vendors. They may feel they are already at a disadvantage with late customer payments and want to ensure their working capital is manageable. However, the reality is that payment terms are not inherently static, and it’s very reasonable to ask for a modification in your supplier contracts.
When negotiating your payment terms, start with your most significant vendors. An established relationship means they’ll be more willing to discuss your needs. It’s also a good idea to identify a point of contact with your vendor responsible for payment solutions and negotiations. It will put you in a stronger position than talking to a sales rep who often stonewalls or makes promises they can’t keep. Explain that you are looking to optimize your payment terms for your cash flow and the stability of your company. Reassure them that you’re not seeking to put additional stress on their current cash flow and emphasize that you are a trustworthy customer with consistent payments.
Require Payment in Advance
Payment terms are a critical component of working capital optimization. They impact new incoming receivables, cash balances, and existing outstanding payables. The Accounts Payable and Procurement teams aim to optimize these components by negotiating favorable payment terms with suppliers. Requiring early payment is the most straightforward technique to enhance invoice payment conditions. For service businesses, this can mean asking for a deposit upfront or requiring payment before starting work. It’s a simple change, but it can make a big difference. It is a tactic that needs serious consideration. For strategic suppliers, renegotiating payment terms may mean “killing the goose that lays the golden egg.” Companies should look for other ways to help improve their cash inflow for these customers without compromising supplier relationships. For example, offering dynamic discounts for early payments can be a great incentive to speed up payment. The right solution can help your business achieve competitive trade terms without significantly changing accounts payable. Flinqer can be your partner in doing this.
Offer Zero-Fee Payment Options
Many companies provide zero-fee payment options to promote their chosen payment method to save transaction costs and enhance cash flow. Customers can avoid credit card convenience fees and the associated interest charges by offering this incentive. Additionally, businesses can save on processing fees by encouraging customers to pay in cash. By implementing these strategies, you can get paid faster and put less stress on your cash flow. Using tools to determine industry standards for your trade terms can provide insight into your competitiveness. You can optimize your payment terms by negotiating discounts with strategic suppliers and requiring advance payment for non-strategic vendors.
Make Payment Easy
Getting paid for your goods or services is critical to the survival of every small business. Setting invoice payment terms is essential to encourage customers to pay on time. When you don’t have a transparent billing process, it can lead to late payments and cash flow issues – which is the number one reason 82% of small businesses fail. It is good to provide as many payment choices as possible. Selection makes it easier to say “no” when selling to prospects and makes it easier for customers. Optimizing working capital requires balancing new incoming receivables against payables, inventory, and an appropriate level of cash. While renegotiating accounts payable is often the first thing that comes to mind, there are several other ways to increase your cash balance without eating into the profits of your new incoming sales. For example, you can offer a discount for early payment on an invoice. It will not only help you get paid faster, but it will also help you build a positive relationship with your customers. Just carefully negotiate your terms with strategic suppliers to avoid antagonizing them and killing the goose that lays the golden egg.
