Setting the right payment terms for perishable goods is a challenge in itself – the obvious example is food, which can range from on-site catering, to wedding cakes, to any kind of hot or cold prepared food. But there are a whole range of other perishable goods, and the same concerns might equally apply toRead More
Setting the right payment terms for perishable goods is a challenge in itself – the obvious example is food, which can range from on-site catering, to wedding cakes, to any kind of hot or cold prepared food.
But there are a whole range of other perishable goods, and the same concerns might equally apply to cut flower arrangements, live animals such as pets, and so on.
In particular, if the item in question is likely to perish in less than 30 days – such as a bouquet of flowers might – then it is essential to ask yourself whether 30-day payment terms are appropriate.
Clearly there are different scenarios within this form of supply though, and a crucial factor is whether you supply your products wholesale to another business, or direct to market.
If you supply consumers, it is usual to ask for immediate payment when the goods are supplied, rather than risk handing them over and receive payment a month later when the goods have already perished.
In an ongoing business relationship though, it may be appropriate to operate with some degree of trust or faith, and accept that payment may be made several weeks after the goods have perished.
Ultimately, the correct payment terms for perishable goods should be based on your unique circumstances, and on a realistic assessment of the likelihood of late payment, non-payment and other payment problems.
If you believe your clients will fail to pay, do not supply them, or you risk losing out on the value of that stock as well.
This is the cornerstone of effective credit control, and it applies to perishable goods and to non-perishable goods, as well as to service supply agreements too.
Your products are not so different from anything that might be consumed quickly – or immediately, such as electricity and water supplies – and only paid for at a later date.
By carefully choosing your credit control terms, you can hurdle the same obstacles faced by other suppliers, and avoid putting your company at risk of bad business debts.