How to Negotiate a Payment Schedule with Customers

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Finance Insights for ProfessionalsThe latest thought leadership for Finance pros

Thursday, November 21, 2019

Making sure your business gets paid on time is a crucial part of the finance department’s job. Here’s how you can ensure that happens.

Article 3 Minutes
How to Negotiate a Payment Schedule with Customers

Late payments are no laughing matter. Almost half of all invoices in the Americas are overdue, while in the UK each small business is owed an average of £6,142 ($7,437) by late payers. Protecting your business from this is a crucial part of finance work, and it starts with the initial payment schedule negotiation.

If you can start your credit control system off on the right foot, you can avoid a great deal of the problems that can harm your business’ bottom line in the future. Here are some of the best ways you can negotiate a payment schedule with customers without alienating them or accusing them of something they haven’t yet done.

Be firm but reasonable

One of the most common reasons for late payments is a lack of funds on the customer’s part. While this is still unacceptable for your business, it at least shows that most companies aren’t intending to scam you out of money. They’re often dependent on their own customers, which can cause a chain of people not getting paid.

You should bear this in mind when negotiating. Protecting your relationship with your customers is crucial, and it’s more important to keep a customer who pays late than to lose one, who then won’t pay you at all. You need to make sure you set clear payment terms, but not do so from the point of view that your new customer is definitely going to pay you late.

Sync up your schedules

In the UK, the excuse given for 44% of late payments is that the payment has actually been made, but the transaction hasn’t gone through yet. Another 22% are due to customers only paying invoices at certain times of the year. These situations are both manageable, if you’re aware of them up front.

Raise the questions in your negotiation. How long does it typically take for a payment to go through? If it’s anything other than instantaneous, factor that into when your invoices are due. Similarly, see if you can sync up your payment schedules so that you’re both expecting the transaction to go through at the same time of the month or year.

Make sure there are consequences

As part of the negotiations, you need to set terms and conditions. In these, you need to have a clear structure for what will happen if a payment is late, and ensure there are consequences, such as interest or late fees. If your client is aware of these up front, they’ll be less likely to pay late and won’t be able to complain if they end up being hit by them later.

Internally, you should come up with guidelines for how to deal with a late payment, including responses to common excuses. For example, Experian recommends that if customers insist their check is in the mail, you ask for details including the check number and the date on which it was sent. That way, you can identify it immediately when it arrives or uncover if it’s just an excuse.

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