Easy Payment Terms – More Cash

In my last post, I talked about how a logistics company’s payment terms were actually influencing their customers to delay and restructure their payments. The company was taking longer to get paid, and it was stressing out each month about meeting its obligations while waiting for payment.

The payment terms were old school 19th Century and that was the core issue.

Do customers have to jump through hoops to pay you, or can they pay you easily?

The competitors to this company all offered monthly payment plans and took credit cards. So for this company to compete with their Amish payment terms, they offered significant discounts and went all in on price.

Two problems with that.

  1. Being the cheapest often cuts your margins way down.
  2. Being the cheapest usually attracts customers who have their own financial issues and are just looking for the best price. If something goes wrong, they are more likely to seek delays and repayment terms.

The company was suffering from both problems.

Why didn’t they just open a merchant account?

“Too complicated before and even with Stripe they still want close to 3% fees which we don’t want to pay.”

So for the sake of 3% they were willing to delay payments by months or not even get paid at all? What is that costing them in terms of missed investment opportunities, working capital financing costs, etc?

It’s not really about 3% because money is not siloed like that. Money has a life.. it moves like a river which you can channel for your benefit or damn it up and let it become putrid.

Think about it this way. Once the money comes in, the business can invest in sales/marketing, service, or other opportunities that will make more money than 3%.

If I were to offer you $10,000 today no questions asked or $10,300 1 year from now which would you take? What if you had monthly expenses of $800? Still wait a year for an extra $300 or take $10,000 now and put the money to work for you?

In this case, the company had a customer who begged to pay by credit card but the company refused and so it took nearly 12 months for the customer to pay the balance.

I told the owner that if he’d invested the credit card payment (minus 3%), he could’ve made money off it in those 12 months.

  • How many customers would he have acquired?
  • How many investments could he have made that didn’t require him to take cash from elsewhere?
  • Finally, was it worth that wait?

By the next month he changed his payment terms and made it easier for customers to pay him.

Today, his cash flow is much stronger and he is also more profitable.

After all, it’s not about the margin on every transaction, but the ROI and timing of the money in your hands.

2023 – How’s your Cash?

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Click this link to discuss your company and situation. No sales pressure – just to see if there is a fit between us and if I can help you. If there isn’t one, I will do my best to point you to where you can get the answers and resources you need.