Are there other questions? Ask these questions of your various suppliers and
kinds of suppliers.
- Payment terms
Payment terms can be extremely important to the success of any business.
If payment terms are given to the buyer of the goods, it means that a period
is allowed before payment must be made.
If payment terms are net, it means that there is no time extended to make
payment for the goods and the invoice is due and payable upon presentation
of the invoice.When buying a product if no payment is required for 15, 30, 60, or, even 90
days, there is a real benefit to the business for that period. That is because there
is a value to using money for a period.
When borrowing money from the bank, there would be interest due for the
period the money was used.In the case of product payment terms, no interest is usually charged; therefore,
there are several advantages to the buyer:
The product may be sold before payment is required.If the business doesn't have to pay for an order for 15, 30, 60, or 90 days, it can
use those funds to invest in other business needs or special terms can materially
affect and improve the cash flow of the business.
Depending on the cost of borrowing and the time interval allowed before
payment, the savings to the business could typically be between 1–3% at cost.
When that savings is marked up to reflect the selling price, the business could
be saving 50% or more, or 1½–4½% of the cost of the product.
However, if special terms are contingent upon taking several months' supply of
the product, it may not be worth it.
Many companies will offer incentives for early payment of invoices. It is
common, depending on current interest rates, for companies to offer 1–2% off
the amount of the invoice for payment before a specified time. Usually this is
10-15 days after the invoice date.