How to Handle Adjusting Payment Terms

8 Jul

At some point in time, your company will encounter a customer who is seeking an adjustment to their payment terms. The reasons they may need this can vary, but understanding how to better reach a compromise will help establish a better relationship and increase the odds of receiving payment. Developing an analytical approach to evaluating an extension will help take the emotion out of the process. 

Why are they asking for an extension?

This question serves as a starting point in trying to understand what financial issues a company might be facing. Is the issue isolated to a temporary problem like waiting for a large payment? Has there been an extraordinary event that impacted the business? On their other hand, have their sales simply declined, indicating an ongoing problem? The reason will help determine your best course of action. 

Are they asking for payment term adjustments from all their creditors? 

This will help you determine the scope of the cash flow problem. Most of the time there are funds to pay some creditors but not all.  If this is the case then your best approach is to insist that the original terms be honored. Let another creditor modify their terms.

Ask what other sources of funds have they explored?

Sometimes they may have a Line of Credit available or be able to get a short term business loan. They may simply be trying to use your company for a free loan rather than using other options that may be available. 

Does your business use Merchant Statements to help validate your customer’s sales?

If you do then this is one of the benefits of using them.  It will help you validate and determine the severity of the problem.  

You may come to the conclusion that you have no choice but to adjust terms and work with your customer. Being reasonable when needed can greatly enhance the relationship in the long term, but just don’t automatically agree to a request without understanding in detail what is going on with your customer’s business. Your customer may end up using you as the go-to creditor for tough times if you provide no questioning or resistance as needed.  

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