Pressing the Right Buttons in Payment Negotiations

by c.j. Ng

        Imagine that there are 2 key accounts in Shandong, China that have some payment issues. This time it's not so much price pressures, but rather the incessant delays in paying. When asked to pay up, or face the cutting of supplies, the 2 key accounts behaved rather differently

        Company A said, "We are barely surviving with whatever we have, and if you cut our supplies, we will go out of business. By then, you won't even be able to collect a single cent. Better extend us the credit, give us the regular supplies, and we will pay you whenever we can."

         Company B said, "We are currently the biggest buyer in this region, and if you cut our supplies, we'll gladly change suppliers who are willing to extend to us the credit. In any case, our company is growing stronger and stronger each day, not to mention that we have the full support of our local government. You should trust our ability to pay since we are such a big client."

         Typical collection headaches in China, and both needed some level of negotiation. In order to deal with each of them effectively, we'd have to take a closer look.

Do You Feel the "Pain"?

         If you had spent a fairly large amount of blood, sweat and tears to win a deal, gave the best possible prices, ONLY to find that that new customer isn't paying on time, and as such is causing delays in your commission, would that cause some kind of "pain" somewhere?

      Moreover, if the same customer is using threats to walk away from the deal if you don't oblige to their increased credit, would that also add insult to injury for you?

        Ouch.

        Unfortunately, those are the buttons that these customers saw, and they just pressed hard at them, don't they?

On the other hand, sales people have also painted a very "painful" picture of themselves in their heads, and hence responded very "positively" to these buttons when pressed.

This is exactly what Company A tried to achieve, and in most cases, they actually get away with it. However, if we were to stay calm and think further, we might notice the following:

People who threaten to hurt themselves, tends to remain as threats and nothing more. Same goes for companies that threaten it will be "put out of business";
Even when companies really have to close down its business, it's going to be a lot more painful for them than it is for the lost sales commission for the sales person

So here are some suggestions on how we can deal with the likes of Company A:

Press their buttons by gently remind them if they do actually close down their business, their families and loved ones will have to suffer with the indignity and instability of the future;
Assure them that, as trusted partners, we will help them despite immense pressure from management.
After much haggling with our management, we have manage to continue to supply to them with just a few stipulations:
- Either we increase the price to cover interest for increased credit time; or
- Reduce the amount supplied due to higher risks (esp. since the customers claim business isn't good)

         Now the above suggestions may be counter intuitive for the regular sales person. The above suggests that if we cannot get them to increase prices, we'll have to sell less (that means less commission) to the customer.

      However, if the customer has already committed your products and services into the production of their products, it is unlikely that they can reduce supplies or change suppliers at short notice. Hence, we should still be able to get favourable terms for the deal.

         Notice also that Company A did not mention anything about giving business to competitors. That usually is an indication that it's a low priority customer that want low prices and has bad credit standing in the first place. In my December 2008 issue, I mentioned that the key to good sales negotiations is to eliminate the causes of bad ones. Such customers are best to be avoided, and if this is not possible, be prepared to press their buttons, because they will push yours.

When You Have to Exert Pressure

         Are there times when customers demand an extended credit line (some as long as 180 days) just simply because there are those big, massive buyers that everybody wants to do business with? Well, that's still bearable if they pay at the end of those extended credit period.

        Sometimes, some of these companies develop the habit of extending these credit lines indefinitely. I have personally known of cases where the customer delayed payments by 8-9 months, even when the credit was just 60 days.

        When the seller threaten to cut supplies, they counter the threat by saying they will go to our competitors, AND will use their soaring sales, market share and profits to justify why you need to "kowtow" to them.

         Well, once upon a time, there was a large American company that was unstoppable, its sales and profits were soaring, and most of all, it's got close ties with the White House. In fact, it was named "America's Most Innovative Company" for six consecutive years by Fortune magazine. Perhaps Fortune was referring to this company's accounting processes, because it was later found to have hidden debts and losses, and was subsequently bankrupt. Yup, you've guessed it, this company is Enron.

         Now, if a blue-chip company like Enron could just go bankrupt, what are the chances of the cocky Company B in Shandong China to be like-wise? Well, the bigger the hype, the harder they fall.

         Hence, if we can see through their ruse, here's what you can do to press their buttons instead:

For whatever reasons, Company B is using the hype of its close ties with the local government and strong growth to squeeze suppliers, and even to conquer new markets or win over investors. What they fear most now, is negative publicity;
You can press Company B's buttons by gently suggesting that you can take the matter to court, to the media, and yes even to the local government. The resulting impact is their story of being unstoppable may be tainted, and that's going to cause real "pain".
Get Company B committed to a payment schedule, enforceable by cutting supplies and legal action.

         Some will argue that in doing so, we may just lose that customer. That is definitely true.

         However, a sales deal isn't completed until the payment has been received. Having a customer who simply takes our products without paying is equivalent to having been robbed, regardless of the financial conditions it is in.

Standing Up to Customer Tyranny

        One may be mistaken that it's only the local companies in China that will use such low-ball techniques to squeeze sellers. Not quite true.

        A international 4A agency that buys advertisement spaces on behalf of their clients is known to use many low-ball techniques to indefinitely delay payments to the media companies that sell media spaces.

        The solution? One media company's account representative was so fed up that she called to tell the end client that their ad has been postponed until payment is received from the 4A agency. The end client responded that they had paid the agency, and perhaps the media company should deal with them instead. Our account representative, knowing that negotiating with the agency will be futile, simply responded by, "I'm sorry, I couldn't reach them, but perhaps you can."

         Needless to say, it worked.

         This doesn't mean we should always play hardball with customers. It just means that in extreme circumstances, we will have to be assertive to make sure we get paid. If you are unsure whether you need to risk the relationship and be assertive, here are some questions to guide you:

Does the customer have a good previous payment track record? Could they have run into some difficulties that is causing the delays now?
When you probe further, are they willing to discuss possibilities (i.e. mapping out a payment plan which they are committed to)?
Are they forthright in their communications with you, and are candid when telling you some of the difficulties they face?

Indeed, for every customer that is a scumbag, there are many others who are willing to talk if you are sincere in discussing things with them. They key thing is still remain cool-headed and know which buttons to press.

In any case, if you would like to gather more insights on how understand your customers' psyche and negotiate better deals, simply e-mail info@psycheselling.com or call +86-136 7190 2505 or Skype: cydj001 and arrange to buy me a mocha. All information shall be kept in confidence