Earning is the main objective of any business. So, there is a need to set clear payment terms and conditions for your customers. It is necessary to keep a smooth cash flow in your business. The payment condition assists to evaluate the quality of your customers. If the business is just focusing on the sales marketing strategies. But they are not providing flexible payment terms. They will never achieve the business goals.
In today’s article, we have discussed the significance of the payment policies. We have also talked about some effective payment methods for the wholesale business.
How Payment Conditions are Important in Wholesale Business
Selling in huge quantities is the main attribute of wholesale business that makes it different from other businesses. Retailers buy goods for reselling purposes. So, it is difficult for them to make payment immediately. So, the retailers always prefer such wholesalers who have flexible payment conditions.
Not only this, due to clear and open conditions for payment, wholesalers confirm the smooth cash flow and the risk of bad debts also decreases.
- More retailers will attract due to reasonable payment terms and there will be an increase in sales.
- Better planning and execution of overall operations of the business.
- Reduce the risk of bad debts as the policies encourage the customers to avail benefits by making early payments.
Payment Conditions in Wholesale Business to Increase Sales
Given below are some commonly used payment terms by the wholesalers. These are beneficial for both the customers and sellers. Here, we have explained briefly these conditions and tips to implement right in different situations.
1.Extended-Term i.e., Net D.
Extended-term is the time period that is granted by the wholesalers to retailers to make payment. It is the easiest and most commonly used in the wholesale business. In this policy, the wholesale businesses allow the retailers to make payments in decided future days. In this way, the retailers don’t have pressure to sell the products immediately. So, that they can pay the cash after selling some of the stock. Most wholesalers allow net 30, net 60, net 90 extended terms according to the quantity and customers’ credibility.
It is true that this condition is helpful for the retailer but wholesalers need to be a little attentive. Check the payment records of your B2B customers before making deal with this condition. If the retailers are new then deal for smaller quantities and lesser extended term.
2.Extended-Term with Different Discounts
It is another type of extended-term that encourages the retailers to make early payments. It is written as X/A Net D, which means the retailer has Net D days to makes payment but can avail the X percent of discount by making a payment within A days. Wholesaler decides the D, X, A values according to their circumstances.
This method uses to push the retailers to make payment before the time. Wholesalers use this technique when they want to increase the inflow of cash.
3.Cash on Delivery
Cash on delivery (COD) is another condition practiced by the wholesalers. In this condition, the retailers have to make payment at the time of delivery of goods. Well, it is not limited to only cash payment. Payment can be in any other form but the delivery time is the basic condition.
Cash on delivery is the right condition to deal with new customers. Because both the wholesalers and retailers have no record of dealing and it is risky for them to trust. So, both parties can make deals without any fear with cash on delivery condition.
Advance is another best payment condition for the wholesale business. Wholesalers are involved in buying large quantities so, that it is not easy for them to pay a huge amount to suppliers or manufacturers. So, they can go for an advance deposit policy. In this policy, they receive a specific percentage of payment before delivery of products.
It is a good method for wholesale businesses to reduce financial risk. It is also helpful to lessen the risk of cancellation of orders.
5.Line of Credit
Line of Credit also known as LOC binds the retailers to make payment before ordering new products. In this way, retailers have the facility to make payments gradually without any pressure.
This condition can also increase sales. It is suitable for the larger wholesale companies.
The above mentioned are some most commonly applied payment conditions in the wholesale business. Each of them is suitable for a specific scenario. Whether you have an online best wholesale platform or locally selling products, choose a set of these conditions. As it will attract more retailers and boost your wholesale business sales. Hope so, our suggestion will be helpful for beginners in the wholesale business.
If you owned a wholesale business, share your experience. Tell us which terms should be included in the payment policy. And which are ineffective in the wholesale business.