How to negotiate: outcomes vs. outputs

A client recently asked if they could switch payment terms to net 30 (we get paid before we ship).  That’s risky because we could ship a bunch of physical products and not get paid.  Further, this is a new client so we don’t have history with them.  To make things even more risky, they’re a startup.

Here’s the client:

“Would you also be able to extend our payment terms to net 30?”

So the “output” or the “thing” the client asked for was net 30 payment terms.  Net 30 is a means to an end.  But what’s the outcome?  What “job” does he want net 30 to do for him?  Why does he want net 30?  Let’s find out.

Here’s me:

Hey John, curious to know how switching to net 30 would help you.”

And here’s “John”:

Josh, net 30 would free up a bit of capital so we could invest in new product launches.

Great.  Now we have the output (freeing up capital for product launches).  Net 30 is certainly one way to free up capital.  But it’s not the only way.  Let’s try this:

Here’s me:

“John, exciting time!  Sales and new product launches.  I understand why you want net 30.  Particularly in the early stages of a business.  More cash in than out makes you sleep better.   Have you considered opening a credit card?  We’d absorb the costs to process the payment.  You’d get net 30.  But you’d also get points or other incentives depending on the card.  Would you be open to that?”

This option gets John his outcome (cash for new product launches) but doesn’t put us at risk.

Here’s “John”:

“That sounds like a very sensible solution especially with your kind offer to absorb the processing costs. I’ll get in touch with our bank to apply for the credit card and get back to you on this.”

Knowing the difference between outcomes and outputs will give you negotiating super powers.