The terms of payment directly affect the cash flow of a business along with its bad debts and risk of unpaid bills. A business in Singapore may need more working capital to cover up the financial gap created by the increasing receivables. It can also increase the risk of unpaid advice. So it is good for a business to set terms of payment for its customers before developing relationship with them. Shorter payment terms can be the best option for any business as it helps in increasing its profits by circulating its capital more frequently.
Still every business offers various types of payment options to its customers including advance check, online transfer, cash on delivery or COD, payment plans, through debit or credit cards, money orders, check, automatic withdrawals and banker’s check etc. In order to get early payments they can also negotiate with their customers by offering certain discounts or incentives on early payments. The terms of payment for customers can mainly be divided into cash and credit.
Cash on delivery or COD is the best payment option for any business as it can circulate its capital very frequently to earn more profits. Some other payment options like advance check, online transfer, debit or credit cards, money orders, automatic withdrawals and banker’s check can also be considered like cash payment as they guarantee the business to get payment along with or after delivery of its products or services. But very few customers get ready for such payment options due to financial tightness and increasing competition in the market.
Most of the businesses, for this reason, offer credit facility to their customers these days. In such condition it becomes necessary for a business to set payment terms for its customers so that it can be suitable for both, the customers and the business itself.
Setting payment terms
In fact, the payment plan you set for your customers should be realistic. People should not consider your payment plan as forcefully imposed on them. On the contrary, your customers should support it and help you in making it better for both, you and themselves. Your customer may not make payment in full if you flatly ask him to pay. In such condition, you will have to offer him some payment plans with different options so that he can pay you as per his suitability and you regularly get your money for supporting your business.
While creating a realistic payment plan for your customer you must keep in mind that your plan should give message to the customer that you understand the condition of every customer. As every customer is unique so you will have to consider the payment ability, payment history, unpaid amount, length of connectivity with your business and the reasons of pending payments while making a suitable payment plan for your customers.
Some of the customers do not pay their bills in time due to various reasons like current economic crisis etc. So while setting terms of payment for you customers you should set them in a way so that you can get some of your payments as soon as possible instead of nothing. Many customers set their priorities while making payment after reviewing the pending and current bills, on the basis of their importance. So you should make you invoice important for them by offering some additional benefits to encourage them to make payments in-time or before time.
While setting payment terms for your customers you will have to outline procedures and policies to regulate them, if they are unable to make full payment instantly. You should also keep in mind while making payment plans that they may also owe payment to other businesses also. So you should offer a suitable solution as soon as possible so that you can get your payment at an earliest.
Things to consider when setting terms of payment
If you are offering credit facility to your customers then you should consider fooling points while setting payment terms for them. The terms and conditions should be provided with the credit application form to inform the customers before they avail your credit facility.
Schemes for early payment
Credit worthiness of the customer
It will help in controlling the risk of loss of capital due to increasing amount of single debt. You should allow them to buy your products or services only for a limit amount of money.
Incentives for early payment:
You can encourage your customers to make payment on-time or early by offering them some time specific incentives or discounts. On the contrary, some businesses enforce penalties for making payment late to compel them to pay on time. But these incentives should be controlled strictly so that they are not giving to those making late payments.
Credit worthiness of the customer:
In order to ensure the creditworthiness of the customers the business should consider their previous payment record. In case of new customer you can offer limited credit facility to minimise the risk of your balance amount.
Credit and payment policy of a business should clearly define its goals so that it can help its customers to understand its needs and reduces the chances of conflicts over credit and payment issues. You should train your staff to implement your credit and payment policy politely and fairly. It will help not only in promoting your business but also in reducing legal fights between your business and the customers.
In this way by setting suitable payment terms for you customers you can improve your profits with time. But while introducing it to your customers you should let them know that this facility may not be available to them every time. If you offer credit facility in continuity to previous credit to your customers then they can get habitual to buy your products or services at monthly payment plans as they need not have to make previous balance payment in full. So, you should make separate written credit agreement for each transaction to avoid such condition. In order to control such situation some companies in Singapore do not offer credit facility more than once in a year.