Changing Payment Terms?

I am a firm believer in rewarding your best customers for the best behavior.  I am making an assumption, but I assume most of your customers could afford to pay cash for their purchases.  If that is the case then I would give them a price for paying on receipt of the product and a higher carrying cost for 30 or 60 days.  Also, they have a 30-day float on a card purchase.  You can also do a credit authorization form to collect on the 30th day.  From 55 years of having customers what to float my money, I also know if you give them 30 days they will take 59 days 

You are in business to provide financially for yourself and your family. Who runs your business you ar your clients?  I ran an Accounting firm from my home for over 20years. 3 years ago I started to rent a commercial space. I needed to increase revenues and improve cash flow. I did three things

1) changed my Tax Prep billing policy to upon receipt of finish work 

2) I started to use a business merchant account where I coul be paid via ACH or Credit Cards for Bookkeeping and Accounting services.

3) I increased my prices by 50%. I only lost 17 clients out of the 402 clients.

The result today is higher revenues with less work and better cashflow.

You should work of 10-15 day  terms, more importsnt always ask for a Deposit.

Owning artwork is an esthetic statement for your clients. They do so for their own personal enjoyment.   As such they shouldn't be buying pieces that are beyond their means making the payments difficult. Rather than worrying about "payment terms" I would want to connect with a credit service which would pay you immediately and collect over 90-120 days from your patron. That gets you your money immediately but more importantly gets you out of the collection business.

Extending the payments terms may afford you more business but how does that action effect your total cash flow? You need to  look at the effect it has on your pricing and profit margin. If you are extending your credit terms and not expanding your volume, then I would seriously look at another way of increasing your volume.

I assume your biz does not involve numerous transactions per day. Could you offer different payment methods so that clients new and old can pay Visa etc over time and you get payment immediately via the CC folks or EMT? 

You can relax the rules for repeat customers by postponing the date charging their cards.

Remember, 

You could preface the change with the letter Rick Prime suggested sent to repeat customers. You could also add that they, as preferred customers, will get the deferred payment terms, for limited a time.

Patricia; This is a great question that most Business Owners don't pay attention to.

With this said; your question has two ways to address it:

1/BLANKET 30 DAYS across all customers.

2/SELECT AND CHOOSE 30 Day Customers and 60 Day Customers.

So this will be a blend on what your receivables look like on a 6 month overview for a more positive cash flow. Use software to analyze or excel spread will work same.

HAVE A GREAT SUCCESSFUL YEARS TO COME!!

BEST; John

Your goal is to sell. Often the payment terms are adjusted to the ability of the purchaser to pay. Most art galleries have their inventory on consignment from the artists and pay a percentage of the selling price to the artist. Pay the artists on the same bases that the client pays you so your cash flow is always a percentage of your sales. Clients wanting to purchase a piece should put at least a significant percentage of the price down (perhaps 30%) and pay the balance over time on terms they can afford. Hopefully this will increase your sales. Credit card processing fees should be shared between the gallery and the artist.

Products and or services have perceived value you need to set your prices and terms as you see fit and repeat clients may not like it first but will adjust and the perceived value will become a reality. 

Hi!

If you do change your terms, I would first change them for new clients and resist "punishing" your long term clients for continued services. You can also start offering credit card payments which will typically increase your cash flow quicker. You can also cherry pick your clients that typically do not pay on time and let them know their rates are changing. It is not bad to change your terms but you do want to mindful of continuing quality customer service for you current client base.

Thank you!

By the way - as a Former Director of Finance for a World-wide company I would never suggest you get a financing company involved that pays for your receivables and collects the money from your clients.

You want (and so do they) their business to remain confidential and not be handed off to a company whose business practices may differ from yours and cause damage to your relationship. By the way this is called Factoring and will cause you to pay more than a credit card fee PLUS you could get the factoring company coming back later asking for their money back if they can't collect.

I also do not recommend straining the relationships with your own suppliers - in effect delaying payments to them and using THEIR money to Finance Your Receivables.

Going to a bank for extensions in lines of credit can cause the existing cost of borrowing to increase for ALL of your loans.

You can easily get around the conditions of accepting credit cards if you are worried about chargebacks so that you will not have this exposure.

David