Your customer has chosen you for a number of reasons. These could range from you offering the right product or service to meet their needs, through to an existing relationship that has built a position of loyalty between your company and them. Where you have any kind of relationship with a customer, it’s worthwhile making sure that both of you are happy.
Negotiating payment terms is often perceived as a dangerous option, because as businesses we fear that our customers could choose to take their business elsewhere. But the important thing to remember is that being honest about how you can best do business will both benefit your customer and support the relationship you are building with them. Here are our four tips for using your customer relationships to support a good cash flow position.
1. Be aware
It’s difficult to negotiate agreements with customers at the best of times, but doing so without understanding your cash flow position is nearly impossible. How can you be sure that the terms you are agreeing to will allow you to operate effectively and support your customer’s needs?
Be aware of your cash flow position now and your likely position in the future, and you will start to understand what your business needs in order to operate effectively and fulfil your customer’s orders. This provides valuable context to any discussions with your customer so you can consider discussing or formalising payment terms before the deal is signed.
2. Be transparent
Having taken the time to be aware of your future cash flow position, now is the time to work with your customer to set an agreement in place that works for both of you. Depending on your relationship with your customer you can choose to disclose the details of your cash position and use it as a rationale for any input you have regarding suggested terms. If terms don’t work for you it’s important to review them now – not in four months time when they are causing your business difficulty.
If you’re worried about cash flow challenges, then you’re not alone. We know from Dun & Bradstreet – 7 out of 10 business managers believe cash flow will be an issue in the coming months. Chances are that your customers may have cash flow issues too, and will be empathetic to your position.
In summary, transparency builds trust. Trust builds relationships. Relationships can retain customers for the long term.
3. Always negotiate
Don’t be afraid to negotiate or suggest a contract adjustment. If you need early cash flow to process an order, perhaps, look to invoice in ‘chunks’ or instalments. If the cost of materials is challenging on particular products, you could look at requesting a deposit payment that will cover the material cost upfront. You may want to consider offering discounted terms on particular invoices. If you having faster access to cash means that your customer will benefit from better service or product delivery, there’s a good reason for them to be interested in supporting your requests. Take the time to explain to your customers how they may benefit.
4. “No surprises”
Anticipate and make your customer aware of potential finance arrangements up front. If you are still struggling to get the terms you need, we suggest you let them know you’ll be using a finance partner on occasions. Being proactive in communicating this will make sure that your customer understands that the partnership is a solution not an indication of a larger problem. By taking a ‘no surprises’ approach you can keep them in the loop and grow your position of trust. For example;
“From time to time we bring in a finance partner…we often use invoice finance or XYZ company to fund our continuing growth. This may involve…”.
If you don’t end up needing the finance facility, that’s great. If you do, it should be an easy conversation to have.
At Fifo Capital, we see each day the way good customer relationships can bring in and maintain business for our customers. If you want to know more about how our customers leverage relationships to improve your cash flow position, then talk to us today.
Invoice Finance, Cashflow Solutions and Business Loans
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