Latest / Closing the Deal with Fexingo: Sales, Negotiation, and Revenue Conversations for Operators / The Hidden Cost of Offering Payment Terms in B2B Sales
Transcript
- Lucas: There's a moment in almost every B2B sales cycle where the prospect says, 'We'd love to move forward, but can you do net-60 on the payment?' And most reps hear that and think, fine, small concession, let's get the signature. Luna: Right, because the alternative is losing the deal over something that feels administrative, not strategic. Lucas: Exactly. But here's the thing — offering extended payment terms is effectively giving the customer an unsecured loan. And if you haven't priced that loan into the deal, you're leaving real money on the table. Luna: How much money are we talking? Give me a concrete example. Lucas: Let's use a SaaS company I spoke with recently. They closed a $1.2 million annual contract. The customer asked for net-60. The rep said yes. No price adjustment, no discussion. Luna: So they just pushed the payment back two months. Lucas: Right. But if you run the present value of that $1.2 million at, say, a 10 percent cost of capital — which is actually conservative for a growth-stage SaaS company — paying 60 days later means the deal is worth about $1.18 million. They essentially gave away $20,000 in present value. Luna: And that's just one deal. Multiply by dozens of deals over a year. Lucas: Exactly. Over ten large deals, you're looking at $200,000 in hidden discounting. And the sales rep never once said 'discount.' The customer didn't ask for one. But the company effectively paid for the customer's working capital. Luna: It's almost like the rep should have said, 'Sure, net-60 is fine. Let's adjust the price by one and a half percent to offset our cost of capital.' Lucas: That's exactly what a disciplined sales organization would do. And some of the best-run companies I've seen treat payment terms as a separate negotiation lever — just like scope, timeline, or warranty. Luna: Let's talk about that framework. How do you decide whether to offer terms, and what to charge? Lucas: First, you need to know your company's cost of capital. For a private company, that might be 10 to 15 percent. For a public company, maybe 6 to 8 percent. That's your baseline discount rate. Luna: And then you calculate the present value difference for the term requested. Lucas: Right. If the customer wants net-60, you're giving them 60 days of float. At a 10 percent annual rate, that's about 1.64 percent of the contract value. So you could say, 'We can do net-60, but the contract value will be 1.64 percent higher to maintain the same economics for us.' Luna: Does that actually fly with procurement? Don't they push back? Lucas: Some do. But here's the thing — procurement is used to negotiating on price, not on terms. When you separate the two, you create transparency. You're not hiding the cost. You're saying, 'We can do either structure. Here's the price for upfront payment. Here's the price for net-60.' Luna: That actually sounds like it could speed up negotiations. Instead of haggling over one number, you give them a menu. Lucas: Exactly. And it signals that you understand finance, which earns respect from sophisticated buyers. One CFO I worked with told me, 'The vendors who offer me net-30 and net-60 pricing side by side are the ones I trust to manage their own business.' Luna: So what about the rep who's afraid to bring this up because they might lose the deal? Lucas: That's the fear, and it's understandable. But the data suggests the opposite. When you present terms as a choice, not a concession, you're viewed as more professional. And if the customer only wants to buy if they can pay in 60 days at the same price, they're essentially asking you to subsidize their cash flow. Luna: You have to wonder how many reps are unknowingly giving away margin just to get a signature. Lucas: A lot. And the problem compounds when the rep is compensated on revenue, not on net present value. They don't feel the cost. The company does. Luna: That's a compensation design issue. But we're talking about the sales rep's toolkit today. Lucas: Right. So here's a simple rule: anytime a customer asks for extended payment terms, pause. Calculate the implied discount rate. If you can't do the math in your head, know that at a 10 percent cost of capital, net-30 costs about 0.8 percent, net-60 costs about 1.6 percent, net-90 costs about 2.5 percent. Luna: Those numbers are small enough that a rep might think, 'Why bother?' Lucas: And that's exactly why they should bother. On a $100,000 deal, net-60 costs $1,600. If you close 50 deals a year, that's $80,000. That's a junior salesperson's salary. Luna: And if the margin on your product is, say, 70 percent, you need to sell an extra $114,000 in revenue just to cover that $80,000 cost. That's a lot of extra work. Lucas: Exactly. So the question becomes, why not simply adjust the price? Most customers will accept a small increase for the convenience of delayed payment. And if they don't, you can always offer upfront payment at the original price. Luna: So you're not being rigid. You're offering a choice. And the choice itself creates value for both sides. Lucas: Right. And this is where the best salespeople separate themselves. They understand the full economics of a deal, not just the headline number. Luna: Before we go deeper, I have to say — conversations like this are exactly why I love doing this show. We're talking about something that directly affects the bottom line, but most sales training never covers it. Lucas: I completely agree. And I think that's why so many listeners tell us they come away with one concrete idea they can use the next day. If today's episode gave you something useful, the way we keep this ad-free and focused is through listener support. You can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that lets us keep doing deep dives like this without worrying about sponsorships. So if you found this valuable, consider it. Lucas: Alright, let's get back to the tactics. So you've decided to offer terms with a price adjustment. How do you actually present that to the customer? Luna: I imagine the phrasing matters a lot. Lucas: It does. You don't want to sound like you're nickel and diming them. I've seen reps say something like, 'Standard terms are net-30. If you need net-60, we can do that, but the price would be 1.6 percent higher to reflect our financing costs.' Luna: That's clean. It's factual, not emotional. Lucas: Yes. And if they push back, you can say, 'I understand. We can keep the original price with net-30, or we can net-60 with the adjustment. Either works for us.' Luna: Now, what about the customer who says, 'Our policy is net-60 with all vendors'? Lucas: That's actually the easiest to handle. You say, 'I understand your policy. Our policy is that net-60 pricing includes a small premium. Let me show you both options.' Most procurement teams will accept a 1-2 percent adjustment if you present it transparently. Luna: And if they absolutely refuse? They say, 'Take net-60 or lose the deal'? Lucas: Then you have a business decision to make. Is the margin on this deal high enough to absorb the cost? Maybe. But at least you're making a conscious choice, not an accidental one. Luna: That's the key — conscious choice versus accidental concession. Lucas: Exactly. And once you start tracking these costs, you might find that some customers consistently ask for extended terms. That's a data point. Maybe you build it into your standard pricing for that segment. Luna: Or you decide that certain customers aren't worth the cash flow drag. Lucas: Right. There's a SaaS company I know that did exactly that. They analyzed their deals and found that customers paying net-60 had a 15 percent higher churn rate. The extended terms were a red flag for cash flow problems on the customer side. Luna: So offering terms wasn't just costing them money — it was attracting riskier customers. Lucas: Bingo. That's the kind of insight you only get when you treat payment terms as a strategic variable, not an afterthought. Luna: Alright, so let's say I'm a sales rep listening. What's the one thing I should do differently tomorrow? Lucas: Memorize those numbers: net-30 is about 0.8 percent, net-60 is 1.6 percent, net-90 is 2.5 percent at a 10 percent cost of capital. When a customer asks for terms, do a quick mental calculation and decide if you want to adjust price or not. Luna: Simple enough. And if your company's cost of capital is different? Lucas: Ask your finance team for the exact number. But even a rough estimate is better than ignoring the cost entirely. Luna: I think this is one of those episodes where listeners will look at their pipeline differently after. Lucas: I hope so. Because the best deals aren't just the ones with the highest face value — they're the ones that deliver the most value to your company after all the hidden costs are accounted for. Luna: And that's a metric worth tracking. Lucas: Absolutely. Next episode, I want to talk about a related trap — when customers ask for a 'trial period' that's really just free consulting. But that's for another day.