A few weeks ago I asked the question why we single-handedly change the contract when it comes to paying an invoice. And why we unanimously accept it? We even accept that suppliers extend their payment terms in terms of crisis. And we even accept to ask for our money, even though the suppliers has committed himself to a legal obligation to pay within the agreed time frame. It is all too weird.
At the end I of my post asked whether e-invoicing could solve this? I received some comments (primarily via social networks). On of this comments was that you could use e-invoices in combination with a financial supply chain. In other words you receive advanced payment for invoices approved by your clients. But their is also an other option for you to use
Advanced payment instruments
This sounds great:
- long payment terms or late payers have less/no impact on your cash flow
- you get financial flexibility in keeping and extending your business.
However great this might be, there are some things to pay attention to:
- It doesn’t change the attitude of the client. He will still change the payment date (and by doing so: the contract) to his own liking.
- From another perspective one could even say that this approach is rewarding your clients behaviour. Instead of confronting him with his ‘un fair’ or even ‘un-just’ behaviour, we circumvent the problem by using an advanced payment instrument.
- And then there is something else. Something worrying. Most advanced payment options are less beneficial to you compared to just ‘asking’ for your money. Why? Because with advanced payment you have to pay a fee or a certain interest rate. Just think of it: you are going to lend money or pay a fee to get your invoice paid. It is the world upside down.
A new approach: combining freedom of choice with responsibility
This is what we did. We came up with an approach where the client has the freedom to determine its own payment term. Combined with a responsibility to bear the consequences:
- we extended our payments terms to 30 calendar days
- we however allow the client to set its own payment date. However:
- if the client pays in 15 days, he receives a payment discount. (not new)
- if the client pays in 16-30: he doesn’t get a discount
- if the clients pays in 31-45 day, an extra amount of 10% is due
- if the client pays in 46-60 days, and extra amount of 20 is due
- and so on.
This way the client can enjoy the freedom to determine its own payment term (and deviate from what was contractually agreed) while also leaving the responsibility and consequences for its choices at the client. You can even use advanced payment instrument to your financial advance.
Behold: the universal right of freedom of choice.
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