Credit terms or payment terms is applicable to all credit sales. The terms are offered by businesses to their customers. For example net 30 days credit term means the customer’s payment is due within 30 calendar days of the date that goods or service is delivered.

It is imperative that businesses must properly manage their credit terms to ensure on time / early payment as this can put the business into bankruptcy due to cash flow issues (i.e. run out of cash).

Some negotiation tips on credit terms,

1. Ask customers for a shorter credit term – if your customer is a large entity, be mindful that their payments cycle is usually set in stone and difficult to negotiate. However as a new supplier there is no harm to give this a go, you don’t get what you don’t ask for

2. Offer incentives :

o Free shipping for your customers

o Discounts – this is the most common arrangement e.g. 2/10, 2% discount if pay within 10 days instead of 30 days

o Prompt payment rebate scheme – provide a rebate discount if several or a string of payments were made on time

3. Penalties for late payments –This works for most customers. However for some of your special customers where you are trying to develop a good relationship you may not implement it.

4. Partial upfront payment – secure portion of payment before releasing goods or providing services.   This will help the business lower its credit risk.

Finally even with the best credit terms a prudent business may consider obtaining trade credit insurance to minimise the risk of late payments and bad debt. Or get into a state of readiness to trade their Invoices in event it requires cash inputs to smoothen its cash flow.

These we believe will help businesses to better manage their credit risks and provide protection over its cash flows.