If you're like many CFOs and similar business leaders, you're shifting your focus to cutting costs through unpleasant methods like spending freezes, budget cuts, hiring freezes, or even layoffs. Fortunately, you have other options for addressing revenue shortfalls. You can still sell during COVID-19, but nothing slows down the sales process like having to negotiate a contract from scratch for every deal. Having a standard contract that is the basis for all sales is a great way to lower this friction. By some accounts, having a standard sales contract can decrease close times by 90 percent.
When business slows -- especially during unexpected economic panics -- many customers will find every possible means to avoid timely payment of their bills. Here are the common contract problem areas you need to address before customers start ignoring your invoices.
Payment Delinquency
When the economy is strong, it can be easy for your company to agree to payment 90 days from receipt of invoice, and some clients even negotiate absurd agreements like 180-day payment terms. Starting today, all new contracts should get that figure down to 30 days net of invoice date. For software-as-a-service solutions, it should be pay-as-you-go with a set payment date each month. Moreover, your client contracts should have a very clear schedule of how many payments a customer can miss, or deliver late, before penalties are incurred or they can be summarily terminated. You don't want to negotiate cancellation and payback terms after a customer owes you money, because your leverage will be slim to none.
Monthly Minimums and Implementation Fees
If you have a transaction-based pricing model, where you get a percentage of every sale or payment for every action a customer undertakes with your software or services, then you need to consider monthly minimum payments and/or implementation fees to cover your setup and support costs. If you're expected to help install, implement and train a customer on a product they aren't currently using, and you don't get paid until and unless they use it, that's a problem. Monthly minimums ensure your costs are covered, even if a customer slows their transaction flow or altogether stops using your solution because of their own economic issues.
Automatic Price Adjustments
It's a law of the universe that the price of doing business increases over time, and your contracts should make it clear the prices that customers pay today may not be the prices they pay tomorrow. Too many companies, new SaaS providers in particular, lock in current prices in perpetuity. Your client contracts should clearly spell out the circumstances under which you can increase prices.
A bad economy may be a good reason to keep prices steady (or even drop them), but your client contracts should ensure those price adjustments are at your discretion, not the customer's.
LinkSquares can help you calculate your risk profile and identify contracts that need to be budgeted for or renegotiated now, before bad contract language turns into a potential financial disaster. If you are ready to identify your problematic agreements contact LinkSquares today.
