Are “net 90” terms taking the fun out of your business?
Lots of coaches encourage you to take monthly payments. It makes it easier for some clients to pay and it sounds nice to have the monthly income instead of the feast or famine of “pay in full”.
But, no one talks about the other side of this equation.
Your vendors want to be paid, regardless of what is in your Accounts Receivable account.
There are some options to balance the income and expenses. These two most common options are rather simplistic, but they will get your creative accounting juices flowing…
1. Ask your vendors for more flexible or extended payment options.
While most vendors will not accept an extension of terms, some will- especially if you are long-term or high volume customer. It does not hurt to ask them for a term longer than 90 days.
2. Offer your clients incentives to pay sooner or pay in full.
It drives me crazy how many business owners offer payment plans like “$997 paid in full, 3 monthly payments of $333, or 10 monthly payments of $97”. They are incentivizing their customers to pay the lowest amount over the longest time. 10 X $97 = $970 They are essentially giving their customers a discount for taking longer to pay.
Instead, give your customers a discount for paying quickly and include the time value of money in your pricing. This means that it is expected that $1 today will be worth something slightly less than $1 in the future, so build that into your pricing.
Have you heard the term “2/10 net 30”? That means you receive a 2% discount if you pay within 10 days and the total is due in 30 days. The nice thing is you can customize the terms however you want. Generally speaking though, the discount is no more than 2% and the net is no longer than 90 days.
Another common term is to have a per payment fee. Insurance companies love this. They add a $6 or $10 per payment fee as a way to encourage customers to pay sooner. And, if they do not, the company earns money on each payment.
Take a card from the larger businesses and look for ways to get the cash in the door. What works best for you will depend on your business and your customers. In most cases, though, people prefer a discount to a surcharge.
As we head towards 2023, and the expected recession, we as small business owners are going to have to figure out ways to keep the cash coming in. If we combine what we have learned from past recessions with a knowledge of who are customers are and what they want, we can not only survive, but thrive.
If you are a female entrepreneur, I could use your help ensuring I cover the topics that are most relevant to you. Please email if you would be willing to chat with me for 15-20 minutes. There is absolutely no sales pitch.