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Reduce terms with Customers without impacting growth or profit

When it comes to cause and effect, there are some relationships that are clear to see and simple to understand – when it’s cold, you shiver; when it rains, you get wet. In business, patterns aren’t always so clear cut and obvious, and may even seem contradictory.  One example of this is the fact that reducing payment terms may not result in a loss of sales or lower margins and can actually help to increase sales, an idea that many businesses are initially reluctant to embrace!

We work with businesses all over the world, in a whole host of sectors, and have repeatedly seen that a reduction in payment terms – when managed carefully – doesn’t have to have a negative impact on a business’s sales.  In fact, one of our clients in Central American dramatically reduced their terms with our assistance and saw a 25% increase in sales within 12 months of making these changes with no reduction in margins.

Common sense would suggest that reducing terms may lead to a reduction in sales, and I have to agree that that may well happen if reduced payment terms were imposed upon customers. But the trick comes from using negotiation techniques to get the customer to agree to shorter terms. But let me be clear we never suggest that shorter terms should be traded for lower prices.

In our experience, in order to make a change like this work, one of the first things to address is the negative mindset of a company’s sales team. In our experience sales people often believe that trying to reduce payment terms will lead to a loss on sales and perhaps the loss of customers to the competition. We use ‘mental model’ techniques to change the negative mindsets and then improve their negotiation skills so that salespeople have the ability to persuade customers to agree to a reduction in terms whilst maintaining a positive relationship.  This highlights the fact that, in business (as in all human interactions), there are often far more variables to consider than just a single cause and its apparent effect.

David Wojcik

Founder JustOne

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