How to write trade terms that get you paid faster to grow your cash flow

When businesses conduct periodic reviews on how they can increase commercial performance, whether this is through trying to increase efficiencies or improving their cash flow position, a large majority of businesses often look to improve processes based on new clients rather than reviewing what is happening directly in front of them. By focusing on your existing client relationships first before looking to improve processes concerning new customers, your business will be prioritising areas of your operations that you can work on to improve straight away, right now.

Depending on your situation, businesses should regularly review customer relationships to make sure they are still aligned with your business’ objectives. A key component of any review process would be to analyse the existing contractual agreements between both parties, identifying any potential issues that could impact your company’s ability to grow. 

Reviewing your trade agreements periodically could be a vital process to defining the longevity of your business, as it could provide you with a chance to negotiate more favourable trading terms, for example, reducing payment terms to help increase your operating cash flow. Additionally, it is also a good idea to review your existing customers credit history with the introduction of Comprehensive Credit Reporting in September 2018. This report provides detailed information about your customers from existing debt agreements, repayment history to credit liability information that could help you understand your customers financial position, but more importantly, their ability to pay for your goods or services.

After you have reviewed your existing client agreements to improve your accounts receivable management and cash flow, it’s important to then start looking at your processes when on boarding new clients. By setting strong expectations from the very first conversation with regards to your business and the specific trading terms, will ultimately help define your relationship and what is expected moving forward. That said, it should be known that any agreement between the two parties isn’t just one way, with both parties needing to understand that any agreement needs to be mutually beneficial to support a successful commercial relationship.

We have now outlined a few key areas to help improve your business’ cash flow, however, let’s take a look at what are trading terms and what type of information that you should be aware of to help you get paid faster.

 

So what are trade terms ?

Trade terms enforces a legally binding contract between two or more parties which can include information about payment terms through to a detailed breakdown of the overall business relationship like SLA’s. As trade terms can differ greatly,we thought we would outlined a few key areas to help guide what can go into a trade agreement and what you should be aware of.

Incentives

With many businesses facing issues with slow payers, some customers need a little push to pay on time and fin such circumstances, offering incentives can prove to be a great strategy to encourage faster payment. Offering discounts or some other reward schemes for timely and or early payment can be a fantastic approach to getting paid quickly. There are many examples of different companies already adopting such practises to ensure that payments are made within a reasonable time frame, although this may not be a viable commercial option for all businesses. 

Payment Policies

Establishing a clear payment policy at the start of the relationship informs the client early on that the company is efficient and will enforce them to make prompt payment. Setting strong expectations should remove any room for excuses from customers and result in timely payments to help generate a positive cash flow for the business to reinvest and grow. 

Mutually Agreed Payment Terms

Clearly defined payment terms helps both parties understand the exact nature and details of the entire payment process. Having these details clearly visible in your agreements and invoices  helps remind customers of important due dates, but also establishes a constant point of reference in the event of any issue. If mutually beneficial payment terms are established, this sets a strong foundation to make sure payments are made on time. 

Supplier Considerations

Something that isn’t often taken into consideration is how untimely payments could affect the bigger picture such as supplier transactions. Creating an effective system between parties can obviously aid positive cash flow. It’s always wise to review payment cycles with suppliers to make sure that everyone is on the same page, although it’s also very important to regularly amend the payment terms if necessary, to make sure they are aligned to your business’ objectives.

Economic Environment

Keeping a finger on the pulse of the macro economic environment and those of your customers is also another important aspect when establishing trade terms and agreements. Conducting your own due diligence on what potential impacts the economy can have on your customers business could significantly minimise your risk. Being exposed to such information can help make a decision on whether to continue to engage in a commercial relationship or renegotiate terms.

Communication

This may seem obvious, but you would be surprised by how many businesses that do not seem to place a high enough emphasis on communication. Constant and clear communication between you and your customers sets the foundation of a strong business relationship. Customers like to feel loved and so its important that they perceive you as being interested in their business and value the relationship. This could include providing honest and upfront communication that will be appreciated, so investing time in their business will help facilitate a successful long-term partnership.

 

No matter what industry you operate in, businesses are built on mutual trust and strong relationships, however certain guidelines and principles need to be set so that both businesses can continue to grow. Creating a mutually beneficial business relationship will ultimately set strong foundations early and help minimise bad debt or slow payers in the future. By considering some of the key areas outlined with regards to trade terms and applying this to your business, you will no doubt be in a better position to increase your companies cash flow.

 

About Marshall Freeman
Marshall Freeman is Australia’s leading debt collection and recovery specialists. We have been servicing over 20,000 businesses throughout Australia for over 15 years, which has set the foundation of deploying industry leading knowledge and collection techniques that simply delivers results that are unrivaled. Whether you need assistance with slow payers or collection of bad debt, we offer a transparent and stress free collection process that makes your debt a priority to get you paid faster.

If you’re looking to partner with a result driven debt collection agency, please feel free to call us on 1300 136 271 or get an obligation FREE debt appraisal by filling in the form on this page.