I know, I’ve finally run out of ideas that make any type of sense. But I promise, this will actually make it easier to digest (because who really cares about payment terms)! So check out these can similarities between George Constanza and the rest of the cast as they relate to contracts.
Payment Terms, Standard T&C’s and More!
Let’s start by setting the stage since the whole cast is involved. Here is the cast (as they relate to contract terms and conditions).
Seinfield – the main character that includes your standard boilerplate conditions (Insurance, Indemnity, Warranties, Confidentiality… you get the picture)
Kramer – He’s a little unpredictable, and so are the business terms that are a bit outside of the norm, such as pay for performance, revenue sharing, etc.
Elaine – The only women in the cast, of course, must focus on relationships. So she’s most SRM terms and conditions, including KPIs and SLAs.
Newman – Always sneaky, he is the hidden clauses each side try to work in. Such as termination for convenience or any maybe a cap on a year over year increase.
Soup Kitchen Chef – No soup for you! Any clauses that legal will refuse to remove regardless of the situation.
Payment Terms and George Costanza
And finally, there is George. He’s painfully relatable. Not sexy in the least. And always trying too hard. He may be short and bald, but he’s still completely lovable!
George is one of those friends who won’t go away, is a little bit annoying, and will have more of an impact than you think (especially if they weren’t around!). But you can’t get rid of them no matter what you do, they are needed to do business. Although most people think of him to be basic or dimwitted in nature, he’s quite the opposite. All of which can be said for payment terms. So what don’t they have in common is a better question! Let’s look at the three basic options when it comes to payment terms and conditions (Net = Days).
Short term (Net Zero or Net 10/15) with Credit back – Typically a small discount ~2-5%. Small, but better than nothing!
Industry Average (Net 30 – 90) – Typically, changes between these are negligible (unless you are spending hundreds of millions with a single supplier).
Long term (Over Net 120 or more) – You’re pushing limits and can be irritating (the terms and George!). Although, you will see the benefit from doing so (as it’s similar to an interest-free loan).
So how do you figure out what’s right for your company? Don’t sweat it, for help with math, check out this web-based calculator.
“Extended payment terms and the increase of working capital reduces the need for corporate loans, and provides more cash stability during the peaks of expense flow…. Wall Street analysts review average payment terms as an indicator of a company’s strength with its supply base”
It’s a no-interest loan, so what could go wrong?! Well, not much if supplier demotivation is at the top of your list. So think about what your company needs, and choose wisely. There are a good amount of pros and cons to weigh on each side. Here are a few things to ponder on when it comes to the final contract negotiation:
- Is the discount more of a need, or is the cash on hand more profitable?
- What is the real cost of pushing your suppliers to wait six months to get paid?
- Will the change have enough of an impact to change significantly wall street valuation?
- If you have an excess of cash on hand, can you increase the discount of shorter payment terms?
- Can your company really invest the cash at a better rate than a discount?
Have time? Check out a couple more of related category management blogs:
Have we stretched the supplier relationship too far?
How to write a RFP Suppliers Want to Respond to
Or an outside resource: