How to negotiate payment terms with clients | Allianz trade in the United States (2023)

Negotiating payment terms with customers can sometimes be a difficult equation to solve without jeopardizing your financial situation or the deal you close. A thorough analysis of your client's situation along with the relevant coverage mechanisms can help you find the sweet spot.

Important bill payment terms you should know

“Conditions of Sale” are the basic and most important terms of your contract: cost, volume, delivery, payment method and date. They must be crystal clear.

In your contract, business credit is extended as a “line of credit,” which details how payment is scheduled over time. It differs from "Pay in Advance" (PIA), which means payment before delivery, or "Pay on Delivery" (COD), which means immediate payment upon delivery.

With a credit line, the customer can negotiate a discount for early payment of the invoice or a rebate for timely payment. This type of mechanism can be very virtuous: it encourages your customer to pay quickly and generates greater long-term loyalty.

(Video) Payment Terms Overview for Small Businesses

Example.A customer receives a trade credit with conditions of "5/10 net 30": If payment is made within 10 days, the customer receives a 5% discount. Otherwise the full amount will be paid within 30 days.

For longer payment terms, you can also negotiate a partial advance payment or a down payment.

What you should consider before negotiating payment terms with customers

Before negotiating payment terms and extending business loans to new or existing customers, you should do everything you can to avoid possible defaults and their impact on cash flow. It is important to define and implement a credit risk management business process that will help you fully understand your cash flow position and assess the creditworthiness of a current or potential customer.

Know your cash flow position

Providing a business loan to your customer means that you agree to shift a cash flow to your company even after the invoice has been signed and the statement captured. Therefore, you need to ensure that your cash flow position allows for this.

For this reason, a good analysis of your working capital is essential before negotiating loan terms. The accumulation of receivables can reduce your free cash flow and affect your ongoing operations and investments.

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It's also helpful to check that your business has enough solid financial reserves in case customers don't pay or are reluctant to pay.

For more information on cash flow management, see our e-book,How to Protect Your Cash Flow: A Guide for Small and Medium Businessesor check out our articleHow to create a cash flow forecast.

Assess the credibility of your customer

It is also advisable to study the financial situation of your customer in order to assess his solvency. By understanding your prospect's credit risk, you'll be better informed about business lending. You can identify a current or potential customer's potential credit risk by reviewing company records from your local chamber of commerce, bank and business records, and the 10k company. This information can be used to estimate solvency in the short and medium term. In particular, you should look at operating cash flow -- the cash generated from operations -- as well as the debt-to-income ratio compared to the industry average.

You can obtain a credit report from national commercial credit bureaus detailing your customer's payment history with other companies, billing activity, and more. Some banks and companies also offer to create such credit reports. Business credit reports often include credit scores. Creditworthiness is a measure of a company's financial stability and likelihood of paying on time. Scores typically range from 1 to 100, with a score of 75 or higher being considered excellent.

Other, more objective, non-financial elements can be considered to assess your client's performance.credibilityand negotiate the appropriate payment terms:

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  • The size of the client: Managing a small client is typically more risky and costly in relation to its business size and financial resources.
  • The useful life of the goods: If the delivered product is perishable or has a short shelf life, its mortgage lending value, which can serve as a guarantee in the event of default, decreases rapidly. Then short payment terms are preferable.

In addition to the financial aspects, it helps to know your client's reputation, your bank's reputation, their business practices, and the background of the company's top executives. The granting of commercial credit is also based on a relationship of trust.

How to negotiate the best payment terms for your business

When developing and negotiating payment terms, your first priority is to ensure that monies owed to your business for goods delivered or services provided are paid to you. To ensure positive cash flow, it is good business practice to agree on prices, payment terms and delivery expectations with potential and existing customers.

Termination of payment negotiations with a new customer

Prepare the customer contract carefully with information on delivery and payment terms. Set the expectation that the contract will be signed before any product or service is provided. To prevent the new customer from negotiating contract terms, clearly define all your payment terms in your contract:

  • Payment due date:Describe your billing schedule clearly. Also refrain from vague references to payment by cash on delivery. Instead, clearly state when your bills are due, e.g. B. "Payable within 30 days of receipt". Make sure your invoices state the exact date when payment is expected.
  • Offer payment motivators:Offering an early payment incentive is a positive motivator to pay before the due date. If you offer an early payment discount, clearly define what counts as an early payment (e.g. 20 days net instead of 30) and what discount the customer can expect.
  • Explain late fees:Avoid expectations that late payments are acceptable by specifying how much and when a fine will be imposed. Make sure you add the same language to your invoices.

Manage payment negotiations with existing customers

At some point, you may have a customer who defaults on a payment or asks for more time to pay an invoice. Managing payment negotiations to benefit your business and retain a potentially valuable customer is a delicate process.

  • Before you trade, listen:When a customer comes to you proactively about an overdue bill, or when you call your customer about an overdue bill, listen to learn about their situation. This way you will dispel any awkwardness and anger and set the stage for negotiation rather than compromise.
  • Offer a payment plan:Be proactive and offer the customer a way to more easily manage their obligations to you. A payment plan can relieve stress and keep you paying.
  • Commitment to due dates:If the customer asks to extend the payment from 30 to 60 days, see if a 45-day commitment would work. Then ask if this timeframe would make it easier for the customer to meet future commitments. If yes, reformulate the contractkeep relationshipand secure future cash flow.

How to ensure timely payment after trade

Once you negotiate the terms, there are several optionsensure timely payment:

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  • Always make sure you issue an invoice as soon as possible and ask your customer to acknowledge receipt. Write down the bill details and speak to your customer as the due date nears rather than waiting until the due date, especially for large bills. If the customer misses the payment deadline, keep the dialogue going and make sure they understand that you won't accept non-payment.
  • Track late payments quickly and securely. For example, you could set up an automated dunning process to remind customers of their payment obligations.
  • If the customer does not meet the payment deadlines, he can demand payment of fines and interest on the outstanding debt. However, if the customer's financial situation has already deteriorated, the penalties are just as difficult to recoup.
  • As a last resort, the client's assets can serve as collateral. This guarantee can only be obtained at the end of an often lengthy and costly legal process.

Collecting arrears or interest or recovering assets is often difficult in the event of a customer's bankruptcy. By insuring your accounts receivable with trade credit insurance, you can rest assured that you will be paid even if one of your accounts receivable is outstandingAccounts before bankruptcyor can not pay.

Maintaining a long-term relationship with the customer

Behind the technical and financial aspects of negotiating payment terms is a broader business strategy. You have to ask yourself what kind of relationship you want to build with your customer in the long term.

A loyal repeat customer should be rewarded: these accounts form the backbone of your business, driving repeat business and ultimately solid operational cash flow. Likewise, when there are unpaid invoices, you need to maintain a good relationship with the customer and relieve tension so that delays don't turn into bad debts.

There is no magic formula to negotiate the perfect payment terms. But a thorough understanding of your financial situation and that of your customers, and defining a clear business strategy can help you lay a solid foundation for business credit terms. Coupled with a good commercial credit insurance partner, these steps can help you manage risk effectively and grow your customer base.


What techniques do you use to negotiate better payment terms with a client? ›

Ask for the most. Be reasonable in your ask, but aim to ask for the higher end of what you need. This is a negotiation, meaning there will be some back and forth as come to terms that work for both parties. For instance, if you need more time than your normal 30-day payment terms, ask for 60 days.

How to negotiate payment terms with suppliers sample email? ›

Dear [Recipient Name], I am writing to negotiate the payment terms for the purchase of goods/services made by our company from your company. We value our business relationship with you and would like to continue working together in the future.

How do you negotiate a payment plan? ›

Ways to negotiate
  1. Lower your interest rate. Arranging for a reduced interest rate is one of the most common requests consumers make to credit card issuers. ...
  2. Create a repayment plan. ...
  3. Look into debt forgiveness. ...
  4. Consider loan consolidation. ...
  5. Offer a one-time payment.

What is the justification for shorter payment terms? ›

When you reduce the number of days a customer can settle their invoice, you will receive payment faster and on time. Remember, the quicker you get paid, the better your cash flow. Having a shorter payment term also means you'll always have reserved cash to pay for the things you need to run your business.

What are the 5 most common negotiating strategies? ›

There are five primary negotiation styles: accommodating, avoiding, collaborating, competing, and compromising. A successful negotiation often consists of one or more of these different negotiation styles. Negotiation behaviors can be useful during business negotiations and in your personal life.

What are the 4 basic negotiation strategies? ›

Negotiation strategies include (1) problemsolving, an effort to find an alternative acceptable to both parties; (2) contending, attempt to force one's will on the other party; (3) yielding, an act to reduce one's basic aspirations; and (4) inaction, a conscious effort to do as little as possible in negotiation.

How do you politely negotiate a contract? ›

10 Tips for Successful Contract Negotiation
  1. Start with a draft. ...
  2. Break it down into smaller pieces. ...
  3. Keep your initial terms simple. ...
  4. Know your “why.” ...
  5. Prioritize your key objectives. ...
  6. Ask questions and understand your counterparty's motives. ...
  7. Come prepared with research.

What are the three key rules to negotiate? ›

The three most basic rules for negotiations are: 1) Prepare, 2) Listen 3) Be Present.

What is the most effective way to negotiate? ›

What to do when negotiating
  1. Be the first to make an offer. Part of being a good negotiator is taking control of the deal. ...
  2. Provide set terms instead of price ranges. ...
  3. Use words wisely while negotiating. ...
  4. Ask open-ended questions and be a good listener. ...
  5. Offer a win-win scenario.

How do you offer a payment plan to a client? ›

Fill out the invoice with the services rendered and total amount due. For payment, list each instalment alongside its amount and due date. It's important to communicate with the customer to make sure the payment plan works for them.

What are reasonable terms of payment? ›

Reasonable payment means, with respect to professional and other technical services, a payment in an amount that is consistent with the amount normally paid for such services in the private sector.

What is the industry standard for payment terms? ›

Across the board, net 30 terms are standard practice in most industries and should be a good fallback if you don't know where you stand. This means that the customer is required to pay within 30 days from receipt of the invoice.

What are unacceptable payment terms? ›

An unacceptable payment term is any arrangement you feel is unacceptable to your firm. That seems broad and very generic so let's add some qualifiers. Are consistent with the standards you set and previously discussed with your clients. Hourly, retainer, fixed fee – the fee arrangement doesn't matter.

What are the 7 steps to negotiating successfully? ›

Seven Steps To Negotiating Successfully
  • Gather Background Information: ...
  • Assess your arsenal of negotiation tactics and strategies: ...
  • Create Your Negotiation Plan: ...
  • Engage in the Negotiation Process: ...
  • Closing the Negotiation: ...
  • Conduct a Postmortem: ...
  • Create Negotiation Archive:

What are the 6 stages of negotiation? ›

The Six Stage Negotiation Process
  • Stage 1 – Statement of Intent. ...
  • Stage 2 – Preparation for Negotiations. ...
  • Stage 3 – Negotiation of a Framework Agreement. ...
  • Stage 4 – Negotiation of an Agreement in Principle (AIP) ...
  • Stage 5 – Negotiation to Finalize a Treaty. ...
  • Stage 6 – Implementation of a Treaty.

What are some examples of negotiation? ›

Negotiating a job offer, asking for a raise, making the case for a budget increase, buying and selling property, and closing a sale are just a few examples of the deals you might be involved in.

Can you negotiate contract terms? ›

If you and the other side are in general agreement about the contract's terms and you have knowledge of basic contract provisions, you can probably negotiate the agreement yourself. Your industry knowledge and business insight will be valuable assets at the negotiation table.

What are the 3 major payment options? ›

What are the three main types of payment options. The three most common types of payment in today's market are credit cards, debit cards, and cash. Credit and debit card transactions involve fees paid by merchants to the card companies, but they tend to involve larger purchase amounts than cash transactions.

How do I choose payment terms? ›

These simple tips are very helpful when deciding your payment terms:
  1. Check each client's credit history (pull a business credit report if you can). ...
  2. Gear payment terms to the amount of the invoice. ...
  3. Set clear terms and fees in every contract and your invoices so there's no confusion as to when you expect payment.

What factors determine terms of payment? ›

Choosing the Correct Export Payment Term
  • Customer Relationship.
  • Nature of Order.
  • Political Situation.
  • Economic Situation.
  • Competitors offer terms.
  • Risk of price changes.
  • Need to control cash flow.

How do you respond to a late payment professionally? ›

Dear [Name], Further to my previous correspondence, I am contacting you regarding late payment for invoice [invoice number]. The invoice was due on [due date], and payment is now overdue by [number of days overdue]. Be advised that late payment interest may be applied if we do not receive payment within 30 days.

How do you ask someone to pay you back without being rude? ›

Here are the best ways to ask for money back:
  1. Don't get confrontational. ...
  2. Drop hints about needing money. ...
  3. Highlight your own financial situation. ...
  4. Ask for money back in writing. ...
  5. Be flexible about receiving money back. ...
  6. Add a sense of urgency. ...
  7. Ask them to cover your half of the bill. ...
  8. Ask their parents.

What is the golden rule of negotiation? ›

Golden Rule One: Information Is Power – So Get It

The first Golden Rule is essential to success in any negotiation: Information Is Power—So Get It! It's critical to ask questions and get as much relevant information as you can throughout the negotiation process.

What is the 3 second rule to negotiate? ›

According to a study published in the Journal of Applied Psychology, sitting silently for at least three seconds during a difficult moment in a negotiation, confrontation, or even conversation makes both people more deliberative -- and leads to better outcomes.

What is the 70 30 rule in negotiation? ›

Stuart also suggests the 70/30 rule in negotiations, where you listen for 70 percent of the time and talk only 30 percent of the time. “The more you can listen, the more control you have over the dynamic,” says Stuart. “In many instances it works quite well to say less.

What are the 5 steps in negotiation process? ›

Key Takeaway. Negotiation consists of five phases that include investigation, determining your BATNA, presentation, bargaining, and closure.

How do you professionally remind a client about payment? ›

Include the following information in your payment reminders:
  1. Use clear subject lines.
  2. Re-attach the original invoice.
  3. Write in a friendly tone, even if payments are late.
  4. Make the payment due date clear, and reiterate the payment terms they agreed to.
  5. Remind them how they can pay, and list the payment methods you offer.
Jan 20, 2023

How do you manage payments with clients? ›

How To Set Up a System To Manage Customer Payments
  1. Establish Customer Payment Methods.
  2. Rules of Thumb for Setting Up Payment Processing.
  3. Send Out Bills and Run Aging Reports.
  4. Initiate Collections Proceedings.
  5. Frequently Asked Questions (FAQs)
Sep 13, 2022

How do you convince a client to pay upfront? ›

How to ask for upfront payment
  1. Know your own value. Negotiation requires hard facts and figures. ...
  2. Charge a realistic rate. ...
  3. Create a logical upfront payment system. ...
  4. Go into the project with clear expectations.

What is 50 25 25 payment terms? ›

The 50-25-25 plan

50% of the contract price is due and payable upon delivery of dailies by the production company or award of the job to the post-production company. 25% of the contract price is due and payable upon approval of the rough-cut by the agency.

What are favorable contract terms? ›

Favorable Terms means rights and/or terms relating to [•] that are collectively more favorable than those rights and/or terms granted to the Investor in any material respect.

What are the payment terms in international trade? ›

There are five primary methods of payment in international trade that range from most to least secure: cash in advance, letter of credit, documentary collection or draft, open account and consignment. Of course, the most secure method for the exporter is the least secure for the importer and vice versa.

What are standard payment terms examples? ›

Common forms are net 10, net 15, net 30, net 60, and net 90 (also written as net 10 days, etc.). Standard payment terms of 30 days, for example, could be designated as net 30 or net 30 days, indicating payment is due on the invoice amount 30 days after delivery of goods or services.

What are payment terms policies? ›

What are Payment Terms? Payment terms are the terms that govern the payment portion of a sale. They govern specific details such as the type and amount of payment expected, discounts offered, how the buyer can make the payment, under what conditions your company may assess late charges and more.

What is the payment obligation clause? ›

This is a set of guarantee and indemnity clauses that can be inserted into a commercial agreement in respect of a party's payment obligations. It is envisaged that the guarantor will be the parent company of the party whose obligations are being guaranteed.

What is payment abuse? ›

Abuse involves payment for items or services when there is no legal entitlement to that payment and the provider has not knowingly intentionally misrepresented the facts to obtain payment.

Which of the following is the best techniques to negotiate? ›

5 Good Negotiation Techniques
  • Reframe anxiety as excitement. ...
  • Anchor the discussion with a draft agreement. ...
  • Draw on the power of silence. ...
  • Ask for advice. ...
  • Put a fair offer to the test with final-offer arbitration.
Mar 23, 2023

How do you negotiate money with clients? ›

How to Negotiate and Keep Customers Happy
  1. Ask questions. If you spend time asking questions and listening, you can get to the heart of what your customer is really looking for. ...
  2. Look beyond price. ...
  3. Make smart concessions. ...
  4. Be transparent. ...
  5. Keep talking. ...
  6. Prioritize the relationship.
Nov 22, 2022

What strategies methods do you use to negotiate pricing with suppliers? ›

11 tips for negotiating with vendors
  • Build a foundation of communication.
  • Research pricing.
  • Learn from them.
  • Sell the vendor.
  • Get quotes.
  • Try a different angle.
  • Talk to customers.
  • Lead with a deposit.

What are the three methods of negotiating? ›

Here are three general approaches to the negotiation process:
  • Integrative Negotiation. When the parties involved in a negotiation have an important relationship that they value, it can be a good idea to explore outcomes where everyone gets what they value most. ...
  • Distributive Negotiation. ...
  • Mixed Motive Negotiation.
Aug 19, 2020

What are the 7 steps of the negotiation process? ›

Seven Steps To Negotiating Successfully
  • Gather Background Information: ...
  • Assess your arsenal of negotiation tactics and strategies: ...
  • Create Your Negotiation Plan: ...
  • Engage in the Negotiation Process: ...
  • Closing the Negotiation: ...
  • Conduct a Postmortem: ...
  • Create Negotiation Archive:

What are examples of negotiating with clients? ›

Examples of negotiable items include extended payment terms, expedited delivery, extended warranties and customization of the product to fit your customer's needs. Do not offer an incentive that your company will not honor. Not only will this look bad on your company, it can make the customer lose trust in you.

What are negotiation strategies? ›

To mount a successful negotiation campaign, negotiators need to follow these negotiation strategies: Never take victory for granted in a complex, multiparty setting. Identify and nurture potential allies before you need their support. Identify all of your likely and potential opponents at the start of the process.

What are the four 4 pricing strategies explain each strategy? ›

Pros and cons of different pricing strategies
Price skimmingIts early high prices help recoup development costs.
Penetration pricingIts significantly lower price can motivate customers to switch brands
Value-based pricingA boon to artisanal goods, high-tech products and other unique services.
2 more rows

What is the most effective approach to negotiating contracts with vendors? ›

Communicate clearly

Clear communication is key to stipulating your expectations with a vendor and negotiating terms you are happy with. By negotiating with a single point of contact, you can focus on building a relationship based on trust, transparency and candidness.

What are the 10 best practices for negotiators? ›

Top 10 Negotiation Tips
  • Do your homework. ...
  • Always consider, but never accept, the first offer. ...
  • You can't get it if you don't ask for it. ...
  • Don't negotiate against yourself. ...
  • Have a solid bottom line. ...
  • Have a fallback option. ...
  • Listen more than you talk. ...
  • Never give anything away for free.


1. Negotiating For Your Clients' Audience
2. How To Respond To Brand Collab Offers
(Sidewalker Daily)
3. $4900 and 20 clients in just 30 days
(The Hartrimony)
4. How To Ask For A Raise, According to a CEO | NowThis
(NowThis News)
5. The Client Science: Managing Clients Expectations by Svitlana Kalitsun, Negotiation Trainer
(ROADS TO Resolution ~ Closure ~ Certainty)
6. The psychological trick behind getting people to say yes
(PBS NewsHour)


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