Collaborate on Payment Terms on Invoice Example for Organizations with Ease Using airSlate SignNow

Payment terms on invoice example for organizations

are you new to negotiating payment terms with suppliers and customers or in your small business to date have you been struggling with either of these well in this video we're going to outline some techniques and things to consider when negotiating both with suppliers and customers and how to ensure that you protect your working capital and at the end of the video I'll be outlining some key resources for you to research further which I really hope will help you in your uh negotiations in the future [Music] hi guys if we're meeting for the first time my name is Ellen bran from founder cave I've been an entrepreneur for over 15 years in that time I've been involved with businesses that have been B Toc uh sess product delivery I've overseen Manufacturing in China I've overseen shipping in China I've worked in B2B Enterprise type businesses so I really understand how critical payment terms are both on the supply side and the customer side and how unfavorable payment terms can really impact on your cash flow for those of you that are new to this uh and don't understand what working capital is working capital is literally the value of your current assets minus your current liabilities and have like I say can have a really big impact on your cash flow so money in versus money coming out and when that happens uh is really really key so let's look at a software s BC B2B model typically you're obviously going to be hosting some sort of software and you're probably going to be charging a license fee so on the customer side you'll be charging a license fee maybe an implementation fee as well so there might be work required to set up your system and their system uh in which case you're going to cover your cost up front there and then once they're actually using the product and the systems live they're either going to be paying you monthly or maybe they're paying an annual fee maybe it's 2 years what whatever it is typically your costs are going to be obviously man hours for the cost of integration but you're going to have uh hosting and setup cost so you're going to be hosting in your system somewhere you're going to have databases and backups and all that sort of thing so more often than not in terms of your operational costs you're probably going to be paying either an annual or monthly fee so what you want to do there is just make sure that at least at the very least whatever you're paying your supplier or providers you're matching those payment terms with your customers key thing is always to make sure that you're receiving money in before you having to pay the money out uh because obviously you're only making a gross profit on that and that's probably what's covering uh the rest of your internal overhead along with any Capital that you've raised Etc so again B Toc you've probably done all the work up front and now you're just uh you know you've done all your marketing and now you're just looking to clip the ticket and you're matching it against your internal cost or your supply cost now if you're just starting out a very good way of grabbing Revenue in quick is perhaps charging you know incentivizing them to pay an annual fee or a six-month fee or a by annual fee maybe they get a 20% discount a 30% discount whatever it is but you're pulling in that Revenue up front and maybe you're paying monthly at the back end so that's the software side now when it comes to hardware and products it's a very very different uh ball game and you know working capital can have a real impact on your business you know you have to have the product more often than not before you sell it so you'll have committed uh some sort of development and probably pilot production or early stage manufacturer with your suppliers so you know there's no getting around it you're going to have to raise some serious Capital to to do that first but what you want to do in any startup or small businesses obviously get the sustainability as quickly as you can so you do need to keep your payment terms and your ongoing revenues uh in mind and look there's many ways that this could uh be arranged so it really depends on whether you're dealing with a large retailer maybe you're you know you're selling through a channel maybe you have a distributor maybe you're doing some sort of FBA Amazon type Arrangement or you're doing Drop Shipping they're all very different but you're probably going to have to commit to paying your supplier or at least the large part of it before you get paid so you're going to have to factor that in now a good way of B Toc of course is if you get a credit card payment well you get that up front before you even have to ship it and you can charge them for shipping so you know you're not doing without uh that Revenue whilst you know product is on a boat or on a plane or something like that but you are going to have to commit uh to have that shipped out of a factory or out of your suppliers end so like I say B Toc you know you're going to get some money coming in up front you're going to ask for an upfront payment and you're going to have that on credit card so that's secured in a way and it might be held you know by Visa or Master Card and Esco until something something's delivered now where it gets really interesting is if you're in the B2B product space my experience dealing with large retailers their stock stand of reply is going to be we want net 90 days which means you're going to deliver them the product and they're not going to pay you until 90 working days after that or maybe 90 calendar days depending on how they working in now if you're just starting out it's very rare that you're going to be able to negotiate that with your supplier so let's run through a scenario here where you're manufacturing widget a and your Manufacturing in China you're going to have it shipped to a port in Hong Kong and then you're going to um deliver it to say the US right and your customer uh is saying well I want to have net 90 days well that's going to be very very difficult for you to sustain you know unless your balance sheets really strong because your supplier there's no way they're going to get you N Net 90 days unless you've got a very long trading history and uh they can get insurance to cover any risk of you not paying them so again com back to a small business or a startup more likely what's going to happen is you're going to have to pay 30% deposit and then 30% on delivery you've already paid you've paid up front for this product and now it's going to have to be shipped so if you're air shipping maybe that's 2 to 10 days before it gets delivered if you're SE Fring you know that could be up to 4 weeks depending on on when the boat is available and where you're shipping it to so you've also got a factor in that time frame then if your customer wanting payment terms on top of that you know you could be looking at at four or 5 months before you actually get paid for money that you sunk back to your supplier now look there are many ways around this and probably rule number one I guess is in this scenario anyway is try to get away from the procurement team and the company that you're dealing with and terms of your customer their kpis are sent around getting the best deal they can for their company so you know they're going to be quite rigid on the payment terms you might have some flexibility there but they're not going to understand you in terms of a partnership and a relationship they're not going to understand the plight of your company they only care about their own kpis and hitting their numbers so good rule of thumb is to work with the you know strategic or product development or Business Development people who are incentivized uh in other ways so they're incentivized into bring new products into their channel for example or strategically this is a direction we want to go so they might be a little bit more forgiving in terms of how the payment terms are structured and and they can fight the battle with procurement and accounting Etc and inside their own organization because they're incentivized to get this new product and they've got Buy in from the executives because yes for whatever reason strategically or in terms of Revenue growth theyve decided this is a type of product or a type of technology that we need to bring to Market in which case you can probably have some freedom to negotiate there you know here's something to to understand especially if you're a technology startup you're a risk right um for a large company uh customer or supplier you're a big risk to them it's very hard for them to get in the insurance cover they're taken a risk internally in terms of their reputation and maybe even their careers and they have to back and and and vet your company so they have already done a lot of due diligence I would imagine by the time you're getting to a point where you're negotiating payment terms you know if they're used to negotiating a net 30 days or net 60 days whatever it is you might say look I can't do that because I've got to pay 30% deposit and then 70% on delivery you're asking for SE rating well that's another 4 weeks so I just don't have the working capital to do that so here's a few things you could do number one is try to get them to match the payment terms with the supplier you know there's at least a 50/50 chance that that'll happen uh another one is okay well I need some sort of uh letter of intent or minimum order quantity or some sort of guarantee in forecast from you or forward orders whatever it is to justify me taking the risk or for me to go back to my say my investors where I can get more Capital to fund that um or and here's another key one where you could go go to the bank right so most banks will uh uh provide what's called trade funding so you know that's it it can work but you you probably need a bit of traction if you're really just starting out like this is your first big deal you're going to have to rely on the customer and their willingness to bring the product to Market to work with you I'd be very surprised if you got much leeway from your supplier if I'm honest because they've got to look at it from their perspective again you're a risk especially if you're a new business so let's go back to the whole China Supply scenario uh if you're asking him for payment terms even fast forward a year right if you've been trading with him for a year and you've paid your bill and they know that you've got this large customer in the United States or the UK or wherever it is even then it's very hard for them to get sign off within uh their own business unless it's a you know a small Factory and you happen to have a great relationship but big risk from them and there's no way their banks are going to uh give them any sort of cover so they'll be looking for if they're going to offer you say net 30 days well then the first thing they're going to do is going to check with their bank or their insurer to make sure they can get cover for that so if you default on your payment uh they can recoup that somehow and you know as we all know Banks and insurance companies don't do you any favors so hard I mean really hard for you to get uh favorable terms on the back end I mean you know some suppliers you've been doing dealing with them for 3 years unless you're hitting some serious volume and they're making a lot of money off you it was tough to do that to be fair so I I think working within the um the impetus and the desire of whoever it is your Champion within your customers company is probably the best way to get match terms but the key thing is Right bringing it right back to work and capital and cash flow is King you've got to think about all of these things uh before you start sign any Supply agreement either on the supply end or the customer end because you don't want to be in a position where you've put money out and you're waiting months because uh you've got long payment terms that you're waiting for that money to come in so you know if you're down $100,000 because you've got nit 90 days over here but you PID to suppli you know you've still got your office rent to pay your utilities your staff everything else so that money is coming out so you've got to factor that into your cash flow planning okay so I mentioned some resources uh to help you get started uh the first place I would start would be your local Business Association you're going to have some sort of government-backed uh trade Association that can advise you on these things there's probably grants and you know mentors and advisors there that you can get all of this assistance for free so I've posted some of the links in the comments below for some of the main centers such as the US Canada and the UK for example there's other places such as going you know calling up uh your local Customs agent they'll be able to help you with you know what sort of documentation you require what are the local uh duties and taxes and that kind of thing uh for importing and exporting into a country going to careers and Freight forwarders so someone like carry Logistics mundal shipping or or something like that you know look at the look at the main shipping companies in your area and or Freight forers and and you'll be able to get um some free quotes and I'll probably point you to someone local or an organization local that can provide you with a lot of this information as well break quote.com is another good one just in terms of understanding costs and uh lead times also too you know just get your own accountants advice your CFO if you've got one your lawyer if you've got one to go through the contracts again you know goes without saying don't sign any Supply agreement without getting your lawyer to review it first just make sure you don't go into these things half cocked and and think that it's all going to be okay cuz these are the things that can really really come back to bite you uh in the long term and really hurt so just be careful out there guys I hope this video was useful if you like this video uh please uh hit the Subscribe button the like button the share button whatever it is you do uh and we'll see you next time cheers guys [Music]