As a leader of your organization, you must ensure your top and bottom lines are strong and stable. You recognize that building long-term commercial relationships with customers is essential to grow, but that protecting your company from catastrophic risk is even more crucial. Your objective is to balance aggressive sales growth while minimizing bad debt loss.
Sometimes, negotiating payment terms with customers can be a difficult equation to solve without compromising your financial situation, tainting newly established connections, or damaging your company’s reputation.
Many businesses are unwilling to extend credit to new customers and instead request upfront or due upon receipt payments on sales orders to reduce the risk of a payment default. There are advantages to adopting such strategies, but in reality, you may be limiting your competitiveness and losing sales opportunities, as buyers may prefer to do business with companies providing flexible payment methods, such as open credit terms.
Let’s look at some of the drawbacks of upfront and due upon receipt payments, followed by how businesses improve sales and customer relationships by extending credit to customers.