Is Your Buyer Asking for Better Payment Terms?
Here are 5 Things you MUST know about your buyers before you do that.
Firstly, what are payment terms?
These are the terms that you, as seller, set to communicate to your clients when you would be expecting their payment. These terms are usually found on the contract and on the invoices relating to that contract.
Common invoice payment terms:
|COD||Cash on delivery|
|PIA / CIA||Payment in advance / Cash in advance|
|Net 7||Payment seven days after invoice date|
|Net 10||Payment ten days after invoice date|
|Net 30||Payment 30 days after invoice date|
|Net 60||Payment 60 days after payment|
|Net 90||Payment 90 days after invoice date|
|EOM||End of month|
|Letter of credit||A documentary credit confirmed by a bank, often used for export|
Providing better payment terms is a sign of having good faith to your buyer. It’s actually sometimes called giving credit terms because essentially, you’re providing credit to your buyers – to pay later. You’ll find that sellers who do this tend to be aggressive in closing deals. Giving better payment terms is good if you are poising your business to grow.
So, if a new buyer asks for better terms, before jumping in to say yes (or no) right away, you need to first conduct proper buyer due diligence. You can do this by purchasing a credit report from a credit reporting agency or you can do it yourself.
Here’s how you do it yourself – the least you can do
5 things you should ask for from your buyer before giving payment terms.
1. Basic info: Name, address
2. Legal status: Date of establishment, identification number
3. Business activity description: distributor, wholesaler, etc.
4. Trade references: commercial morality (are they involved in any past litigations?), payment history, and agency credit scores if available
5. Financial condition: past and current financial records
There’s nothing wrong erring on the safe side.
Chances are, when you’re applying for trade credit insurance or trade financing for your transactions, the information above would be the same data insurers and lenders would ask about your buyer. Availability of these data can smoothen your applications too.
Disclaimer: The views and opinions expressed by the author does not necessarily reflect the official policy or position of Vesl Pte Ltd. Should you wish to contact the author of the blog, you may do so by contacting her here.