I’ve always thought that this tactic was just a little bit crazy, but I have come to think that it goes on a lot more than any of us may believe. To set the stage properly, you’ve got to be able to imagine a buyer who is desperate. For whatever reason, a project has got to be started NOW. Ultimately the project has a number of items that are going to have to be negotiated, but its got to start NOW.
Using the buy now – negotiate later tactic, the buyer asks the seller to start the project now on a prearranged contractual basis. The buyer will then provide some limited funds in order get things started and both the buyer and the seller agree to work out the details in the future.
Does this sound dangerous to you? This is not the way that I like to work – things can get messy really quickly. The key reason for the way that I feel is that it can be incredibly hard for a buyer to change vendors once the project is started. We all tend to make both financial as well as mental commitments that are hard to change after we’ve reached an initial agreement with the seller. What was once a temporary agreement, has somehow become permanent and the buyer is locked in to it.
With all of this having been said, buy now – negotiate later can still be the way for a buyer to go in certain special circumstances. Some of these are:
- Blobs: Sometimes the amount of work that has to be done truly can’t be estimated until some initial work has been done.
- Out Of Time: Although we’d all like to have plenty of time to sit down and complete a negotiation, sometimes there is no time for negotiation – work needs to begin right NOW!
- Phantom Costs: Sometimes there has been an initial discussion of prices between both parties. This has left the buyer feeling as though the seller is trying to collect for expenses that will probably never occur.
- Pilot Time: If the buyer has never dealt with the seller before or if the job requires unique specialized skills, then the buyer may want to try-it-before-he-buys-it. This will provide the buyer with a way to find out if the seller truly knows his stuff.
- Seller’s Advantage: The seller may be willing to enter into this type of deal if he/she realizes that his bargaining power is going to be less later on. There are several different reasons why this can happen, the most common is that resources have been committed and this means that he/she will lose this contract opportunity.
- Good Record: The buyer may be willing to enter into this type of agreement if his research shows that the seller has a good track record and past customers report that he probably won’t rip the buyer off.
- Not To Exceed: The buyer can consider entering into this type of deal if the seller is willing to commit to a not-to-exceed price at the outset.
I’m still wary of these types of deals. Even sellers need to be careful. A seller’s power in a negotiation is the greatest during negotiations BEFORE work has started. Once services start to be delivered, then all bets are off.
Have you ever been part of a buy now – pay later deal? Why was this type of deal proposed? Who proposed it: the buyer or the seller? How did it turn out – was everyone happy in the end? Leave me a comment and let me know what you are thinking.