Sooner or later, every business will negotiate payments terms with a supplier. For many businesses, those suppliers will be in foreign countries, thus requiring global payments – which have their own costs and can be difficult to reverse if things go amiss. Many factors can influence negotiations over global payment terms, some of which may be obvious while others, not so much. Consequently, the process of negotiating terms with suppliers is increasing in importance as businesses seek to streamline their supply chains and reduce costs.
Factors to Consider Before Sending a Global Payment
Naturally, product-specific factors are always part of the negotiation. These include pricing, customization, shipping and delivery details, warranties, technical assistance for product use or installation, retail packaging options, discounted payment plans, rebate offerings and agreements to repurchase unsold inventory.1 All of these factors influence the value a business receives from any supplier – and the amount of any related global payment.
But other factors also merit consideration prior to making any international payments. For example, consider invoice terms not only in regards the amount to be paid, but in the timing of the payment and any inherent flexibility – especially if there are fees associated with individual international payments. Is it a flat fee regardless of the value being transferred? Then even if payment over time is offered, it may be more cost effective to make one single global payment to save on fees rather than multiple global payments that spread the cost over a longer period of time. Some businesses may seek to time a global payment to take advantage of anticipated swings in foreign exchange rates. But such a business must consider whether the delay would cause it to lose any discounted invoice terms. These factors are all outside the four corners of a typical supplier contract, but can still affect the overall cost of the goods being purchased and the total value of the related global payment.2
Other Factors to Consider
Other factors, such as order size, also can be used as a tool in global payments negotiations. Is the size of the order very large relative to the supplier’s average order? Is it being placed at a time when the supplier is in need of a boost in cash flow? Is it being placed when the supplier already has excess inventory it is seeking to sell to make room for new production? Or perhaps the supplier has excess production capacity, with machinery and employees sitting idle, and might be eager to accept less-than-favorable terms to put those resources to work? Or is the supplier so large that the business’ order (and the international payment) would be smaller than a rounding error on the supplier’s records?3
Additionally, what is the history between the business and supplier? Has the business been a partner with this supplier for years or decades and, if so, does the business want the relationship to continue? Conversely, perhaps the business only seeks to place one order with this supplier, and have no further dealings once the international payment is made. Another important factor is how reliant the business is, or will be, on the supplier. For example, if the business develops a successful revenue stream based on the supplier’s goods, will its sales be severely impacted should the relationship end?4
All these factors should be taken into account by a business when negotiating the terms of global payments to suppliers. There are a variety of ways to make those international payments – through banks, wire transfers, currency transfer services, etc. – but before making any international payment, a business should have the full picture of all the costs associated with the contract and the payment.