Should Your Company Give Clients 30 Days To Pay Invoices?
For many small business owners – such as marketing professionals, consultants, and IT companies – getting a contract from a large, well-established company can be a financial windfall. If you manage the relationship correctly, you could gain a well-known brand as a client. More importantly, these clients have the potential of becoming great repeat customers.
However, most large companies often insist that vendors provide credit terms. These net payment terms give them up to 60 days to pay invoices. This request is very common for commercial sales and is often included in boilerplate contracts. Unfortunately, business owners seldom consider the full financial implications of accepting these terms, only to find themselves with financial problems later.
Can you afford to give terms? Be sure to double-check
Before offering credit terms to clients, determine if you can actually afford to do so. Keep in mind that your company needs to spend money to service clients. You will need to pay salaries, subcontractors, and vendors for up to 60 days before you see any payback.
You need to calculate the approximate cost to deliver your services and then determine if you can wait to get paid. Make sure that your company does not run out of money while waiting for payments. This is often a problem for small firms. Unfortunately, once you run out of money you are usually also out of options.
Does your client deserve credit?
Even if you can afford it, offering payment terms is not always a good idea. Make sure that your client has a good payment reputation; otherwise, you could find yourself with a collections nightmare and serious cash flow problems. And don’t assume that a client is a good payer just because they are a large, well-known brand. Many large companies are bad payers.
Perform a little due diligence to determine how well a client pays by getting a commercial credit report. Unlike consumer credit reports, which have restrictions, commercial credit reports are available to anyone. A commercial credit report allows you to see how a company pays its vendors. This is an indicator of how quickly they will pay you.
Most reports also provide a credit score, guidance on how to interpret the credit score, and, often, a suggested maximum credit line. Well-known credit report providers include Dun & Bradstreet, Experian, Cortera, and Ansonia.
Tricks to improve your cash flow
You can do a few things to minimize the financial impact of offering terms. The easiest technique is to offer your clients an incentive to pay quickly. For example, many companies offer clients a 2% discount if they pay invoices within 10 days. This simple trick works well and improves your cash flow as long as your clients participate.
Read full article by MARCO TERRY on SteamFeed.com
