— July 26, 2017
Negotiate payment terms during the sales process, when your agency has the most leverage.
A client recently shared a success story from his agency—about how he negotiated a big prospect’s payment terms from Net 60 to Net 20. In effect, they’re paying more than a month earlier—a great deal for his agency, especially since he didn’t have to provide any discounts.
Let’s look at how he did it, since you can benefit, too.
Be confident… or fake it ’til you make it
At the beginning, he was nervous about working with the proposed terms, as he runs a relatively small agency and the prospect was a much larger organization. His usual terms are Net 15, but the client said their terms were Net 60.
A key is that his prospect—the CMO—like his agency’s work, and was willing to push back internally to get faster turnaround. The CMO was in a hurry, and the agency was able to use that to their advantage.
In the end, my client said he’s glad he negotiated payment terms instead of just accepting the prospect’s initial pushback. He was able to turn a risky commitment into a comfortable, mutually beneficial one.
State your payment terms early
The key to his success was negotiating payment terms during the sales process, instead of hoping the client would change after closing the deal. If your agency struggles with negotiating favorable payment terms, here’s my advice on handling the situation.
1) Set expectations and terms early. Remember that you have the most leverage to get favorable terms in the beginning; it’s hard to make changes later. After the contract’s signed, why would your new client change?
2) Remember the power of citing policy. “Our agency’s policy is that payments are due Net 15” is more persuasive than “I’d like you to pay Net 15.” You can always relax your policies if needed, as long as you call out the special deal.
3) Look for incentive alignment. Think about how you can create a win-win. It starts by understanding your client’s business goals (and personal goals, if you get them to share).
4) Focus on low-investment, high ROI items. Look for things that are important to you but not important to your prospect—those are easier to get than things that are big for them. For instance—if your business model doesn’t depend on media commissions—the prospect might be open to paying for media directly, saving you from the risk of “floating” the expense.
5) Consider the power of compromise. Your initial proposal shouldn’t be crazy, but be sure to give yourself room to meet in the middle. Perhaps you want Net 20 and they want Net 45. If you can settle on Net 30, each side feels like they “won” a little.
6) Know your limits. If you’re willing to walk away, you have a stronger negotiating position. When a prospect won’t budge and it would hurt your agency, consider whether it’s worth it.
Question: How to does your agency ensure favorable payment terms with your clients?