What are your invoice terms?

Cash flow can be as important as gross revenue, especially in this recession when revenues are down and expenses are high. Having the cash available to use  is critical for survival rather then waiting endlessly for it to show up…its in the mail,  they say…we all know that one, seems like it takes weeks for the mail to arrive these days even months.

So who created this requirement? Whom ever it was, it seems to be the way of the business world and I say enough!

We are not banks. We do not make loans, let alone unsecured, non-guaranteed loans. We need our cash when we ship. I ask again. Why do we all believe we must extend terms? Some say if we do not we will lose the business. I say Good! Maybe that business is business we do not want to have in the first place.

We must invest in the raw materials, pay our overhead, pay our payroll, ship our goods and then wait for 30, 45, 60, 90 days for payment?

Think about how much smoother our business operation would be if we received the payment in  5-7 days, or 10 days, respecting the client enough to allow them to see the product or service, determine if it is delivered as ordered, write the check if it is acceptable and mail it to us… 5-10 days at the most. That works.

And what is this 2% 10 net 30 all about. Now we are discounting to get paid in ten days as if the customer should be rewarded for doing what he should be doing anyway?  Paying the bill. I definitely do not get this at all.

How about penalizing late payment after ten days. I repeat we are not banks, we should not be lending our customers money or allowing them to use our goods and services before they pay for them.

Some say that our competitors provide such terms so our customers will go elsewhere if we require tougher payment terms. I say let them go, they are not the customers you want. The times they are a changing, and we cannot afford to accept long payment terms, rather not ship at all. Revenues are down, expenses are up and we must squeeze every dollar we can out of out of our cash flow to survive and grow again. Its time to evaluate our terms and conditions.

You must be providing goods and services that are unique, valuable and demand loyalty to your  business and  so you deserve the terms you demand, and if you have not accomplished this then it is you who are not doing the job effectively enough to warrant such payment terms, then change your ways. Do a better job, provide more and better service, and enjoy better customers, faster payment.

My bet is, that if you get paid in 5 you will be able to deliver faster, better, and with greater quality and will be so valuable to your customers they will want to pay you a soon as you require. That is the answer.

Another approach, although not as valuable, is to mark up your invoice and allow a deeper discount for immediate payment, but make them pay for the borrowing. More then the 2% everyone wants to give away. I say mark it up an additional  10% for net thirty and then discount it the ten%  for payment in 5 days…So now  if they want the terms they are borrowing the money and paying for it, reasonably enough to warrant the extra 30 days time. But if over thirty another 5 %.

You get it, if they want to use you as a bank then charge them for borrowing. If they want to buy in the due course of business then they should pay upon delivery or shortly thereafter.

Announce this and you will see how good a job you are doing. If your customers head for your competitors then you must review your policies and procedures,  you are not fulfilling your mission adequately, if they remain our customers you just increased your cash flow tremendously. Congratulations, job well done. Enjoy your business rewards.Find out and do what is appropriate.Survive this recession.