“Cashflow is King” – long live the king!
In recent weeks, we have been working with one of our clients looking at the margins and debtor position of a number of their customers. Flowing from this, we found that one of their major customers was on a far lower margin than the others and also had the longest payment terms. In effect it was costing our client to have them as a customer!
Our client then took this information to their customer and, lo and behold, the trading terms came in by 20 days! The information they shared was very open and honest and they presented the situation in a very frank and direct manner. One of the really surprising outcomes from all this was that the customer actually offered our client additional work for their other businesses and has opened up new supply opportunities to enable a better relationship to be developed.
In the current times where people can find it hard to supply at a decent margin (ie: one that actually makes you a net profit!), one of the terms and conditions that can be manipulated is payment terms. If you work out the cashflow impact of your debtors paying you in 35 days instead of 45, the difference in your bank account can be amazing. Similarly, if your debtor days go out, you will definitely notice it! I explain this in a bit more detail here.
So, when it comes to negotiating terms and conditions with your customers, why not review it in light of not only margin, but also payment terms? That way, you can be king!