Selling Power Magazine Article

Times are tough, no doubt about it. When cash flow is tight, customers tend to seek longer payment terms. The question for sales managers is, when and how should salespeople be willing to give them?"A lot of customers do not have cash, so financing is very popular," says Tom Hopkins, president of Tom Hopkins International. "Also, our [purchasing] culture has changed so much, both consumers and businesses expect credit." Good salespeople may figure out during the qualification process what a customer can pay by analyzing the customer's financial position, monthly revenue, and other obligations. But even strong firms may not want to pay cash. "They want to use cash for business investments, not purchases of copiers or office equipment," Hopkins notes. Lease payments are always tax-deductible expenses, but cash purchases may not be, according to type and jurisdiction. "You have to consider tax implications in selling anything."One way to anticipate customers' credit requests is to look at their purchasing history. Unless top management changes, for example by merger, firms tend to continue the same purchasing habits. Whether reps anticipate it or not, they should always be ready for customers who want extended payment terms. Bob Gibson, president of Negotiation Resources, urges salespeople to approach these requests in the same way they would approach any other request for a better deal."They could be asking for a better price, better terms, or just a little bit more in the deal," Gibson explains. "The psychology is interesting, especially in times like these, because it makes salespeople feel that all the power lies with the buyer."Gibson's solution: Give salespeople tools to even up the match. "Salespeople need to go into every sales situation with six 'swap-outs' that they can pull out of their hip pocket. They need to be comfortable with using them and have the right language."The right language might sound something like this: "If we can get this done, would you be willing to consider this?" The swap-out can be anything advantageous to the salesperson's company: an increase in order size, a longer term, an upgrade, the purchase of a warranty or agreement, or exclusive or preferred-vendor status. Or it could be a useful referral. "I don't care what the swap-outs are," Gibson emphasizes. "The point is to change the dynamics of the relationship, so the buyer does not have all the power and the salesperson all the fear." There must be no commitment in early discussions. "If you say, 'I will extend payments if you do this,' that is an ultimatum," Gibson says. Salespeople who practice the approach and are well coached pick up the language and confidence quickly. Continues Gibson, "They need to have the swap-outs under their belts so they don't even have to think about them when they have to pull them out."The decision to extend payments or not can be made several ways, depending on sales cycles and company policy. Some reps have the authority to negotiate deals. Their swap-out might be, "Can we close this today?" Other salespeople work on an 18-month sales cycle, and many others involved must be consulted before a decision is made. The negotiating approach can apply after a deal is closed, when customers start finding it difficult to make payments. "Tell them waiting for payment is a really big sacrifice," Gibson advises. "Ask them to suggest what they might do for you. They might come up with gold you never thought of." What are the costs of not allowing extended payments? "You have to balance customer needs with your needs and chances of getting the money," advises Steve Kaplan, president of Steve Kaplan Live. "They can be gone all of a sudden."The three basic questions to ask when assessing that balance are: 1)Is the rep's company financially strong enough to extend payments? 2)What is his or her company's cost of capital? 3)How does extending payments alter the risks of not getting paid? Like swap-outs, reps must have answers to these questions before deals are done. "If you provide good service, and [the customers] like you and have a history of paying, you may obtain more value by extending payment," Kaplan says. "But you have to pre-think it." "Pre-thinking" is especially important in landing large accounts. In Kaplan's experience, most Fortune 500 companies never pay within 30 days: "If they take sixty days, they take ninety or one hundred twenty days." Major corporations do this because they know their business is valuable and their credit is good. Market-leading firms accept this delay but exploit it to do more profitable business.Kaplan says willingness to give credit can sometimes be part of the brand and permeate marketing as well as sales. "You may not want to be your customer's banker, but suppose you have certain product lines that are not selling and you have excess inventory. So you offer better (continued on page 2)

terms on these products, including financing."Once a deal is done, salespeople should not get involved in negotiating debt down, argues Richard Keegan, president of Management Training & Consulting and a former head of a collection agency: "That task should be handled by the collections department." He continues by asserting that reps hurt themselves by being directly involved in these negotiations, although they should advise collection staff on the value of each customer and relationship.Keegan understands the basic problem: "If you shed customers just because they are behind on debt, you will go out of business. And businesses want to maintain good relationships and reputation and buy your products, so they will negotiate." Above all, do not ignore late payments, advises Keegan. "Squeaky wheels get the grease. Be persistent in collecting debts from businesses."Clark Pest Control sells to customers of all sorts - residences, businesses, and manufacturing sites. Sales manager Jim Bowyer acknowledges that business was difficult in 2009. "We had to work harder and smarter for it."Clark has always been willing to negotiate extended-payment terms for its larger customers. Bowyer says the choice is mostly a matter of looking at the customer's business needs and Clark's prospects for eventual payment. "We look at [the customer's] track record, and we can't let that company get too far behind schedule or we risk [not being paid]." That practice did not change in 2009. Moreover, Bowyer says, he did not see much increase in customers' requesting extended payments during the year. What did change was the risk: "When there are residential foreclosures, there is not much the customer nor we can do about it."