In the B2B world, optimized payment terms and defined net terms are crucial for a company’s success and liquidity. They influence not only cash flow management but also the quality and stability of business relationships between merchants and their customers.
This article provides a comprehensive overview of payment terms and net terms in the B2B sector and offers practical advice for merchants to make their financial arrangements effective.
What are payment terms?
Payment terms are agreements between business partners on the modalities of payment for the delivery of goods or services. In the B2B sector, these terms are essential as they influence liquidity, risk management, and business relationships. A clear and detailed list of payment terms is critical for smooth business operations.
What information should be included?
- Payment period: The period when payment must be made after invoicing or delivery. For example, payment periods can be 30, 60, or 90 days.
- Payment methods: How payment will be transferred, e.g., bank transfer, direct debit, or electronic payment transactions.
- Discounts: A price reduction that incentivizes buyers to pay within a certain period before the payment deadline.
- Default interest: The interest amount due in the event of late payment.
- Retention of title: A clause stating that the goods remain the merchant’s property until full payment is received. This clause protects the merchant against payment defaults.
- Discounts and bonuses: Additional incentives offered to buyers who fulfill certain conditions, such as ordering large quantities or complying with payment terms.
B2B vs. B2C
Unlike B2C transactions, where payment terms are often standardized, the B2B sector allows for greater flexibility and customization to suit individual needs and relationships. B2B payment terms and net terms are often negotiable and can be tailored to the specific requirements of both parties to create a win-win situation.
What should I offer my B2B customers?
Common options in the B2B sector include:
- Net 30, 60, or 90 days: These terms can offer customers more flexibility depending on your industry and liquidity situation.
- Installments: Enables your customers to pay for larger purchases in smaller, manageable amounts over a fixed period.
- Cash discount offers: Incentivising earlier payments can accelerate cash flow.
- Customized agreements: Based on the customer relationship and history.
Factors to consider
The following factors should be taken into account when setting payment terms and net terms:
- Company liquidity: your cash requirements will influence the optimal net terms you offer your buyers.
- Customer relationships: Long-term and trusting business relationships can justify more flexible net terms.
- Industry standards: Follow the usual practices in your industry.
- Risk management: Assess customer risk and the potential impact on your finances.
What do you do when payment deadlines aren’t met?
According to Sidetrade, companies worldwide pay their supplier invoices an average of 21 days late. If your B2B customers fail to honor the agreed terms and there are payment delays, taking effective action is crucial to secure your payments. It is essential to take a proactive approach and seek dialogue. Find out why the customer’s payment is late and suggest possible solutions, such as flexible payment plans. In some cases, it may be necessary to take legal action to enforce your claims.
Offer flexible payment methods without risk
Offering flexible payment terms is easy and stress-free with Mondu. Mondu enables you to provide your customers with customized payment options tailored to their needs without the risk of payment delays. You receive your payments in advance, directly after goods are dispatched, and Mondu takes care of receivables management.
