Extended payment term vs sales target
Since many years you have used the same payment terms: “60 days end of month”.
Due reasons related to the recession your main customer starts asking for 120 days. That is almost doubling the existing payment term. The purchasers are under the pressure of their management to extend the payment terms to preserve cash. It is a worrying idea (The MCCA Blog) especially as it will be the larger companies putting the smaller ones under pressure for longer payment terms (Sarah Johnson – marketingmagazine.co.uk).
If you would agree upon this, the Days Sales Outstanding (DSO) of the company will increase. This means getting the cash later. The cash needed to keep the operations and purchases running. It can mean the company will need to increase the loan or credit from the bank.
On the other hand if your company is cash rich, extending the payment terms will be a competitive advantage over your competitors (Joe Fox on Supply Excellence).
Also this event will create a precedent that is difficult to reverse afterwards: once 120 days, always 120 days. The customer will insist keeping this extended payment term forever or get something in return.
Moreover other customers could find out and ask for similar terms.
As always when things turn bad, this will happen at the very moment you need this deal in order to achieve your minimal sales target for the quarter.
What do you do?
- Interrupt the meeting in order to call your VP Sales.
- Interrupt the meeting in order to call the CFO.
- Interrupt the meeting order to call the CEO (small company).
- Stop the meeting by explaining you need to talk face to face with your VP Sales.
- Stop the meeting by explaining you need to talk face to face with the CFO.
- Try to negotiate 90 days without consulting your VP Sales and give away an additional service.
- Agree upon the 120 days without any discussion as you need the deal.
- Agree upon the 120 days and get it in writing on the contract it is a one time event.
- Agree upon the 120 days under the condition that the customer doubles his order quantity.
- Stay with the existing payment terms even if you might loose the deal and the customer.
- Stay with the existing payment term but give an additional discount or free service.
Whatever your action or decision, it will have an impact on the business and finances of the company.
Will consulting the CEO, CFO or VP Sales have the best outcome for you?
Will consulting the CEO, CFO or VP Sales be good for your bonus as they don’t care about it?
If you decide alone what will be the consequence for you and your career?
Probably this demand will not be a unique event, but will happen with several of your customers within a short period of time.
The best would be if your management prepares guidelines for such events as it is likely it will happen on several occasions for most of the salesmen.
How would or are you already handling this extended payment terms demand?