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Personal Finance

Firmly tie discounts to payment duration

Tuskys Supermarket
A past sales promotion at Tuskys Supermarket. FILE PHOTO | NMG 

Before agreeing to that discount, find out how long the payment will take. Duration as a bargaining chip is elusive to most sellers, and the consequences can be frustrating; some even admit to feeling used. “They asked me for a 15 percent discount, which I agreed to until their LPO (local purchase order) arrived and I realised they planned to pay after sixty days! It was a double loss. I felt cheated.”

Buyers will always look for a discount. Even you do. Whatever the reason they do so is not the point. The point is that when they do, among the issues to explore before agreeing, is how long the payment will take.

There is reason why that school uniform shop tells you that they’ll give you a discount if you pay in cash.

And now you know why the mechanic scowled at your request for a discount, when you showed up to pay 45 days after he serviced your car. It is the same reason why some stalls would rather have an M-Pesa agency than a Paybill number; and, though unethical, there are outlets that mark-up payments made via cards. Cash is king. This is a favourite expression in finance circles.

It means that cash is what pays for services, products and expenses. Your salary and commissions, for instance, cannot be paid by an LPO. And you cannot pay school fees or buy food with a signed contract. In any case, a sale is considered closed when cash is received.

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And when cash delays, it costs to get it as it comes as a loan.

So next time the buyer says, “Give us a discount” respond with “What are your payment terms?” or just plain, “How long do you take to pay?” Then tier your respond accordingly. Meaning, give discounts commensurate to what is acceptable to you. For instance, “If you are paying immediately, we will be happy to extend that discount.” Or, “Unfortunately, for that payment period we are unable to extend any discount.”

This calls for strength in character as you must be firm when saying it. What if I lose the sale, or he has another service provider lined up? Well, that’s why you must be firm. Wavering will only serve to embolden the buyer to push the discount envelope further. He smells fear and the natural instinct is to ‘attack’.

Of course, the ideal situation is to establish the buyer’s payment terms well before the issue arises. During the pitching phase, unearthing how long they take to pay enables you to be prepared for (even pre-empt) the issue.

During the interview stage try asking, “What are some of the challenges you have with customers?”

Delayed payment is likely one such and allows you to flow into, “What about you? What are your payment terms like?”

So, there you have it. Exercise caution with discounts. As the opening says, “Before agreeing to that discount…”

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