Now is the time of year to potentially look at adding billing options to help close more sales. If your business plan can handle it, offering the customer the option of billing effective Jan. 2, 2009 can many times open numerous new sales.
Every year, I remind people of this option and every year, people are thankful for the idea. Two items I do want to stress, however, are knowing what your “cost of money” is and what your credit options are, especially right now. Your “cost of money” is your opportunity cost, not what it costs to borrow money. You determine your opportunity based off of knowing what your return on investment is on the money you’re able to borrow. For example: If I’m able to borrow money at 5%, but I’m able to use that money to get a 10% return because of what I do with it, then my “opportunity cost” is 10%. Smart companies work off of this premise and I encourage you to do the same regardless of how small yours might be. Remember, it might be very tempting to tell a customer looking to place a big order that they can have extended terms and not pay until Jan. 1, but in so doing, you expose yourself to greater cost of money and risk if they don’t pay. As long as you go into the process with your eyes wide-open knowing what the downside might be, then providing payment options at year-end can be a great sales strategy.
One final note, if you’re a publicly traded company or exposed to the SOX rules in the US, then you need to understand in advance how you will book the sale and revenue on your end.