Top tips for payment terms negotiation

Payment terms negotiation can strike fear into the heart of even the most steeled businessperson – you’ve gone to the trouble of drawing up bespoke payment terms that perfectly suit your risk profile, only to find that a particular supplier or customer has totally different ideas about when they want to pay or get paid.Read More

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Payment terms negotiation can strike fear into the heart of even the most steeled businessperson – you’ve gone to the trouble of drawing up bespoke payment terms that perfectly suit your risk profile, only to find that a particular supplier or customer has totally different ideas about when they want to pay or get paid.

It’s not just about deadlines – a big-name customer might expect a huge credit limit that puts your entire cash flow under threat, for instance, or might request a perk like a discount for prompt payment.

payment term negotiations


Alternatively, you might want to enforce penalties for late payment or non-payment, which the customer raises an objection to (and if they are going to do this, it’s best to get it out of the way early so there are no disputes later).

Payment terms negotiation is your chance to sit down and amicably resolve the disagreement over your terms and conditions – and remember, just as much as you feel like the other party’s terms seem unfair, they are probably feeling the same way about yours.

Negotiation is a skill in itself, so a seasoned businessperson is likely to have encountered many of the skills needed to enter into payment terms negotiation with a good chance of success, but our top three tips are:

 

  1. Know your limits. Have an idea of what you are aiming for, and where you’re willing to compromise – but also prepare to go beyond this if you need to in order to seal the deal, and set a ‘hard limit’ beyond which you simply walk away.
  2. Be firm but fair. You won’t always get everything you want, but you stand a better chance if you are firm about things. Be prepared to wait in silence for a counter-offer, whether over the phone or face-to-face, as if you’re the first to crumble, you’re likely to lose out.
  3. Get it in writing. Payment terms negotiation should end in a third set of Ts & Cs that differs from either your own original terms, or the other party’s. Don’t sign anything until you have this set down in writing and have checked that it’s what you both agreed.

 

If you’re still in any doubt, have a third-party specialist draw up a new set of payment terms that you are both satisfied with, rather than using a modified version of either of your existing Ts & Cs that might feel like it is biased in favor of one side over the other.

All successful business is about striking a deal you are both happy with, and when it comes to paying for the goods or services supplied this is no different – so don’t be afraid to negotiate in order to find the middle ground that leaves all concerned as happy as possible.

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