Small businesses often feel obliged to ensure their clients are well serviced but this may be to your detriment. Your business may put clients first but too much leeway and you may not have a business from too many late-paying or non-paying clients.
So how can you negotiate with clients to maintain both a good relationship and a successful business?
Here are the steps to ensure both your business and the customer come first.
Define the problem. It sounds obvious, but your clients may not realise the full effect of their behaviour on your business.
Do they always pay late, causing cash-flow issues for you? Have they racked up a number of orders without settling the bill, causing problems with your suppliers?
Draw a clear line between the issue and the effect, as well as the possible consequences, which may include your inability to serve or supply them.
Take a look at your payment terms, which may be dictated by your business cycle or other stakeholders – for example, the payment terms between you and your suppliers.
Are your payment terms realistic? Can they be adjusted? Have they been noted by the client?
Use the review as a chance to open a conversation with your clients about your expectations and their ability to meet the payment terms.
If a number of clients point out that they are used to a 30-day payment period instead of the seven-day one you’ve imposed, think about changing yours.
Payment terms may represent a competitive difference.
Understand what the other party wants. Different businesses have different cycles and more often than not, you’ll need to compromise to make the relationship work.
If a client has trouble paying on time, work out a mutually beneficial system.
Extending the payment period won’t help your cash flow, so consider payment by installments instead, for example.
If a troublesome client wants to order from you but you feel reluctant to proceed because of a bad payment record, perhaps full payment or a deposit up front will allay your hesitance.
Know your own limits as a business. Even if you’d love to extend credit for 90 days to all your clients, you still need to deal with your own creditors.
Make sure your clients know where the line is and the consequences of crossing it, whether you’ll charge interest on late payments or call in a third party to collect the debt.
Beware that it may come down to whether you want to keep the client. It’s never easy to refuse business, but sometimes it’s for the best, especially if they’ve never paid.
While generous payment terms can give you a competitive advantage at first, they could be detrimental to your bottom line. Payment terms are about enabling clients to pay you when they can while maintaining your cash flow.
When you have this balance right, you’ll not only keep your clients – you’ll see your business thrive.
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