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Tips for negotiating appropriate customer credit terms

Customer credit terms are a negotiation not to be to be taken lightly, and a selective procedure is vital for business protection, success and longevity.

Many businesses never think about the type of customer that’s purchasing from them until they ask for credit terms – and it’s at this point you’ll need to consider whether you want to deal with this customer/client on credit terms. If so, it’s vital for SMB owners to asses and research the customer to ensure the business is protected from bad debtors.

The selection process

Being selective when giving credit terms is what will help your business survive. Asking for credit referees and calling these to check on the client’s credit history is one of the best ways to protect yourself.

Think back to every time you’ve asked for credit yourself – the normal answer you’d have received should have been along the lines of “You have to purchase from us first or establish a good credit rapport with us before we consider credit.” This is why after agreeing on credit terms, most businesses will still do the normal credit checks on you. These businesses understand the need to protect themselves, and require peace of mind that they’ll get paid.

The payment process:

Businesses must remember making the sale is only the first step in a much greater process. The most important part is getting paid – otherwise that sale is worthless and could be something that contributes to putting you out of business.

I encourage a lot of businesses I work with to request an amount upfront. This is a two way street however, because if a contractor requested a 100 percent upfront payment you’d most likely be a little worried. Asking for 25-50 percent to cover materials upfront is much more understandable, as the job could require them to make a direct outlay from their pocket and if you don’t pay them they’ll incur a large loss, which puts their business at risk.

Not unlike the above situation, you might have to pay for materials or supplies out of your pocket for the product or service you’re selling. Think of it like this – how many times could you sell a product, not get paid for it and still stay in business? There’s no harm in requesting some of the payment upfront, to cover these costs if it the client does turn into a bad debtor.

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Brad Callaughan

Brad Callaughan

Brad has more than 9 year’s professional accountancy experience. Brad has worked in senior management roles within Taxation and Business Services dealing with a number of clients from a range of business sectors. Brad is an avid property investor and renovator and has always been involved in small business ventures since the age of fourteen. Callaughan Partners was formed to deliver and exceed our client’s expectations; the continuation of this is the driving passion and focus of our business. Brad enjoys developing his own business interests and property portfolio along with his interests in golf, horse and dog racing, sports and fishing.

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