Placing an order on Alibaba.com can bring a lot of emotions with it. Excitement about the goods, but also a little anxiety if you’re placing an order with a new supplier for the first time and trust hasn’t been established yet. Paying for an order upfront can also put a financial strain on your business.
One way to alleviate some of the concern is by asking your supplier for payment terms. Simply put, payment terms are a delayed payment method. If you’ve never asked for payment terms, you may think the supplier won’t offer them to you. Luckily, this is not the case! Every supplier is different when it comes to the payment terms they may offer, so if you’re professional and approach them thoughtfully, the worst that can happen is they say no and you proceed with your order.
What are payment terms?
Payment terms indicate how and when payment is made on an order. This will typically be written into your contract with the supplier, and will appear on your invoice. There are many configurations for payment. For example, you may get 70/30 payment terms. This means you’d pay 70% upfront, and 30% upon receiving the goods. You can also negotiate a prolonged payment after receiving the goods, which will often be written in terms of “net” days. For example, “net 60” would indicate that the final installment (in this case, 30%) is due within 60 days of receiving the goods and/or invoice.
What are the benefits of payment terms?
There are several reasons to ask for payment terms:
- Increased cash flow. Paying 100% of an order upfront can put a financial squeeze on your business. Spreading payments over time frees up your cash flow for other things, such as paying expenses, paying salaries, or using that money to invest back into your business.
- A better credit rating. If your business has more cash or credit available, this makes you appear to be in better standing to creditors. Placing a large order and paying 100% upfront could decrease your rating if it represents a substantial amount of your credit.
- Decreased risk. There is always a concern that a supplier may run into business troubles themselves and shut their doors temporarily or permanently. This is especially true during the pandemic. If you pay 100% upfront and this happens, that money is unfortunately a sunk cost.
- Improved quality management. If you can agree to payment terms that include a payment made after a third-party inspection (find affordable Alibaba.com inspection services here), the payment can be used as leverage should there be quality issues.
When should you ask for payment terms?
Payment terms typically get written into your contract, so it’s important to ask for them before the contract has been drafted. The supplier will typically name their payment terms upfront, so it may not sound like they’re negotiable. But just like B2B pricing and delivery options, the way you pay can often be negotiated if you just ask.
You can also ask for payment terms anytime during your relationship with a supplier. Even if you’ve already placed an order with them in the past, you can and should ask for different payment terms each time you work with them. This is especially true if you have a good relationship with them. If you’ve paid on time in the past, your supplier will be more likely to trust that you’ll pay again in the future if they give you the payment terms you ask for.
Tips for negotiating payment terms with your supplier
Once you’re ready to ask for payment terms, there are a few things to keep in mind to have a successful negotiation:
- Try large companies. Larger companies may have better cash flow themselves, and could stand to wait as you pay over time. They also may have payment terms themselves on materials or with their vendors.
- Talk to the right person. Many suppliers will have a sales person or even an intern who answers their messages on Alibaba.com, and this may keep you from getting favorable terms. Politely ask to speak with the person in charge of payments.
- Do your research. Learn what you can about the industry and whether payment terms are usually offered. Online research can be fruitful, and you can also send inquiries to other suppliers about their products and the payment terms they may be able to offer.
- Introduce yourself and your company. Suppliers are more likely to offer terms to larger companies with more purchasing power. If you have an impressive sourcing budget or will be making consistent orders for the next few years, be sure to say it! If you don’t source high volumes, you can tap into emotions. Make your note personal about your company’s background or mission, so the supplier understands they’re working with a human and not just a business.
- Ask for more than you expect to get. As with all negotiations, you should start on the high end. It should not be unrealistic, but a step or two above what you found in research. This way when you meet somewhere in the middle, it’s closer to what you wanted in the first place. For example, if you want net-30 terms, ask for net 45.
- Make the offer benefit them. The supplier will be thinking “What’s in it for me?” and you should be sure to answer this question before they ask. Explain that better cash flow may help you increase your current order volume now or in the future. You can say this will help you pick that supplier in the future for more orders. You can also say you’ll be more likely to send friends in the industry their way.
- Guarantee your order. If you promise to place the order if you get payment terms, you will have a better chance of getting them.
- Be flexible, yet firm. If you really are willing to use another supplier for your order, a last effort is to say your finance department only allows you to buy from suppliers who offer payment terms, or say you are ready to look for other suppliers should you not get them. This can sour the relationship, so be sure to use this tactic wisely.
Good luck in your negotiations! At the end of the day, payment terms can benefit both your business and your supplier’s. You can learn more about the order process and end-to-end sourcing solutions on Alibaba.com – from setting up inspections to fulfillment options – right here.
This week's #B2BTuesday Tip:
Remember that just about everything in a B2B transaction can be negotiated. If you can’t negotiate payment terms, think about other ways your supplier could bend a little to help you with the price and payment.