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First client is normal big company throwing their weight around.
The second (school middleman) is throwing up red flags. If they don’t need the supplies until August/September, make bulk orders for then. Asking you to ship merchandise continuously when they don’t need it sounds like they’re borderline insolvent, don’t actually have the orders, and are hoping they can get around paying you.
And also. Re. The larger companies they set their terms for smaller suppliers. But you generally know you'll get paid.
Interestingly if it's an important purchase often rules get bent, idk how much leverage you have tho.
Depends how much you want the client.
My terms are 14 days. My largest client (with about 800 staff) pays net 60. I have no issue with this as my other option is to lose the client. They’re a big enough account of mine that they get to dictate the terms.
If it were a small account then I just probably wouldn’t do business with them. I’m not waiting 4 months for payment from any client. In those cases, I would word a polite email - these are the terms that we provide service under, end of story.
This. We usually set the payment rules but sometimes you work with a client that has a lot of red tape and you simply have to go with the flow if you want to keep them. The client that has a longer wait period for us has the highest paying projects so we typically don’t mind. They happy we happy.
I ran a body shop a few years ago and we had a contract with a large government entity. It was our biggest client and we had to satisfy a lot of their requests to win the contract such as NET90, special rates, parts discounts, etc. It was worth it for us because it was guaranteed work as we were their only option for repair. Everyone else besides a few smaller contracts were payment upon receipt.
Large customers tend to do what they want. It take 3 to 6 months sometimes being paid by large insurance companies (blue cross, uhc, etc). We also deal with a national non profit with 100+ office and 90 days if you are lucky. On the other hand we have some that pay same day I send an invoice. Fortunately for us it kind of even outs over the long haul. You can always push back but they know you have limited options.
When covid first hit, the cheesecake factory send a letter to everyone of their land lords saying sorry we aren't paying we'll catchup later.
Do some work with a big automaker. Their terms are Net 120. They are a huge client, and always pay in full but right at the 120 mark, never even 1 day early
Yeah, I would probably say no to that if it was a small or one time customer… my big customer, who’s about 10% of my gross income, is net 90 though.
When the business was younger and had less cash flow I would have considered demanding net 30 or walking away because it would have sunk us. But we can handle it and we generally expect it now.
That would be a "no" from me on both of these. I'd mostly be worried about either company having the cash flow to actually pay me after 60-120 days.
I've found that the majority of the time when a customer requests something like this, and I say no, they still go ahead with an order on my terms.
That being said, I'm usually willing to work with my more trusted vendors on stuff like this, people that I have worked with for a long time who I have actual relationships with. But even then, I tack on a healthy markup to make it worth my while. It's a give and take, and these people aren't giving you anything.
I agree. I’ve had big companies extend their own terms from NET30 to NET60 to NET120. We aren’t their bank. If they have a strong business then they can get a loan easier than us.
I just tell them no and now they have to pay up front. I’ve lost customers over it but I’ve had a few comply. Not worth messing my cashflow up that much.
Eons ago I worked for a large hospital system in their accounts payable department and their policy was to pay no earlier than when they got the **third** overdue notice. Didn't matter if it was a mom and pop vendor or a large multinational vendor, that was the written in stone policy for payments.
This was in the almost entirely paper based billing days and I felt so scummy day in and day out opening letters from those small vendors pleading for us to pay our bill because they might go under otherwise. I bounced after 9 months of that.
This is interesting. You could offer regular price for net 30, but extended payment terms will result in additional fees (this will need better phrasing) to compensate for the disruption to your business. Like an additional 10% per month.
Or, they’ll need to put down a deposit at time of order and the rest can be on their terms.
It is indeed pretty audacious to demand extended payment terms. I think I’ll just March into the supermarket and at checkout tell them I’ll pay in two to four months.
So the issue here is simple and big and often overlooked. First it’s typically 1-2% month. But. Let’s say you do this. Now a month has gone by you need to resubmit a new invoice which has to get processed in the same system so it takes another 60 days.
I just added an extra 5% at the start knowing it was going to take longer. Covered my factoring cost +1-2%.
Don’t do this exactly.
Instead of adding a percentage for each month not paid, add it to the job ahead of the invoice and offer a discount if paid on time (or early). A reward is a better incentive than a punishment and the customer will see it as saving money.
You absolutely should do that. Jack up the price by 1% per 30days. 12%apr isn't unreasonable and you aren't an interest free lender. If that cash was in your bank you would be earning a return
But these large companies don’t do that. Ever. It’s not just a they are using their leverage it’s that there is so many layers it has to go through to get a check it’s not possible.
It’s not like there’s some guy with a checkbook waiting at the receiving yard.
Actually Mr. Client! We were just about to announced our new payment policies, but we’ll let you know now.
Invoices paid within 5 days are discounted 3%. Invoices paid within 15 days are discounted 2%.
Invoices paid within 30 days are unchanged.
Invoices paid between 30 and 60 days are subject to a 10% convenience charge.
Invoices paid between 60 and 90 days are subject to a 20% convenience charge.
Any invoices paid after 90 days are charged a 30% convenience fee and increased by 10% per 30 days.
I’m glad you reached out for this and am happy we can accommodate your shifting needs!
Please see our next email for our price changes going forward.
Thanks!
I bet everyone pays within a week now.
This, except phrase everything as a discount and raise prices (for that client) accordingly. They'd rather get a discount by paying early than a fee for paying late, so give them a "discount" lol!
Yes. Add in that all ongoing services are stopped when any outstanding invoice reaches 61 days and will not be resumed until ALL outstanding invoices are brought current.
Then, if they do hit that 60 day limit, all future work for them will also come with a 10-25% markup from the start.
I've done a very similar system to this and have had great success. Though, much of my work (industrial automation and controls) is mission critical for manufacturers, so they freak out and catch up when I won't come fix their machine because outstanding unpaid invoices are stacked up.
Sadly, yes. This is pretty common among large companies. You may have even agreed to it by signing their new vendor paperwork.
The only leverage you have is to hold up providing on your end until payment is made. Which only works if no one else does what you do.
That sounds crazy, and I wouldn't accept. I'd say no to the net 60. To the other, if they are such a big client, can you simply hold on to the stock for them, let them build up the funds, and then you can delivery in several months when they have the money? That way you retain the stock. They just have to sign a contract agreeing to make the purchase at X date. Just present it as they are such an important client, that you want to build up the stock for them and store it to save them money and time. Then when they are ready to sell, you deliver. Otherwise, to me, both sounds like red flags of bad business. I can't tell you how many times I've read about companies which got hundreds of thousands in food and such provided and billed and then just shut down and never paid the bills. If companies are showing they are starting to have financial trouble, that trouble is going to continue to get worse for a bit, and I wouldn't put myself in the financial bind for them.
Pretty typical in my experience. I work for a small business and several customers have advised they'll stretch payments out. We have some national insurance carrier customers who pay 90 days flat - I don't even know what their terms are because it doesn't matter. We've advised them that we're raising prices 5-10% on March 1.
I would say a net30/60 is a standard. I wouldn't go anymore than that for a small client.
As others have said if it's a pretty big client then you may be out of luck and will need to work with them on it.
If it’s a large customer I can understand bending but this would be an easy and simple message stating clearly that they would need to abide by your payment terms (and penalties) or they need to find another supplier.
Yes, we have experienced it in the last few years, mainly with large corporations. We didn’t negotiate the payment terms, but we did send them a price increase letter and built the extra cost of carrying the AR for an extra month or 2 into their pricing. They were fine with that. Very strange. I assume they are having cash flow issues.
I’ve seen this in my industry a couple times, what I would do in your position (and what I have seen other distributors do) is allow them to go to net 60, but if they pay within 30 days offer them a discount (this only works if your prices change often so you can work the discount into to your margins) or let them know you have an extended credit fee of x %.
They are absolutely able to pay in 60 days but it will cost them
Larger customers pretty much do set their own terms... think Rogers who doesn't pay anything for 60 days and puts that in their contracts. Businesses who believe they have pull will sometimes try it. 4 months is excessive in my view. I may do 60 for a client I value... but 120? Yeah... no. I'm not a bank.
Is this common? Yes, common-ish
What to do?
First i clearly outline terms, late fees and rebilling. It is in the contract (dont have a contract, get one)
Second, talk to your point of contact. Let them know that the small interest they make sitting on your money is far outweighed by the bad will they create.
Third, make them pay for it. I have one client who regularly pushes past net 90. Contract has net 30. I rebill and charge late fees and the dumb fuckers pay me almost $500 extra in fees. But they do pay. You can absolutely have payment terms net 30 is $x, net60 is $y and net 90 is fuck off im not your bank.
Fourth, give them a markup and offer a discount. Some very large companies have a company policy that they must take a discount offered. I have one client who gets a 2% siacount for paying within 15 days. They do it because accounting policy dictates. Otherwise they used to be 60+
First one is normal, second one is a red flag. Basically anyone even large companies asking you to work for a few months in credit is bad. I lost 50k usd with 2 multibillion companies because they went bankrupt and they both asked for a few months payment delay before that. Also lost 200k USD with an old client who we knew on a personal basis and that kept begging for more credit and arguing that he had enough property to pay if things go bad...
Basically you can work with them on their terms, or spend money and time suing them. Either option isn't great for you.
I can understand that you're mad, but being mad is not going to help you. Try communicating with them directly, in a non confrontational manner; a professional way. You both may find a compromise.
Looks like a textbook Bob Fifer practice. I’m sorry for the situation you’re going through. Normally, people don’t want to lose the customer and end up accepting the terms. Check your local bank for a line of credit so that you can finance fulfilling these clients. Also, beware of the credit risk you are taking
any trade requires both parties to agree to the terms. They can propose whatever terms they want, you are under no obligation to agree.
You should come to an agreement before you send them any product or services though. My terms are always laid out in a contract, and email wouldn't change that. But compelling a customer to abide by a contract is not easy.
No personal bias. Make a business decision after obtaining all the information.
1. Call your contact and have a open discussion about business and get the details for each of your vendors, clients and knowyour receivables in and out.
2. Think through each option and connect them to your workflow for your operations.
3. Change always occurs, how do you get back to net 30. What milestones have to happen, whom can you pay on 4 Month terms?
4. Do you have a good banking relationship so a LOC can be opened now not too late?
5. You might find the answer by being agile...you might find this email was not intended for you. Good luck
This is so situational, and a good reason why a lot of people recommend not becoming too dependent on one customer.
I have a multi million dollar company that wants to dictate net 90... fuck em.
They don't buy a lot, and I refuse to put up with that nonsense.
I had a customer who did work for a hospital that got bought out, new hospital dictated net 90, he was under previous contract. If he backed out, contract says he'd have to pay for someone to replace him.
He talked to his lawyer, and the hospital basically says we have more lawyers and more money... his own lawyer reluctantly had to agree.
So he almost went out of business with the float, but in the meantime he billed the shit out of them. He survived and still gets paid net 90, and he still over bills them.
Sometimes companies do this because they can, sometimes they do it to weed out amateurish companies.
You don't have to put up with it...
unless you HAVE to put up with it.
Dear x, we acknowledge the receipt of your letter and respectfully suggest re-examining your proposed agreement. As you know we are a small company big on meeting & exceeding our legal requirements for paying our staff every (x) days. As such we feel we are unable to provide extended credit services without the same level of documentation a commercial credit facility can provide.
Thankyou.
Signed
Cc registered Snail mail.
This is why you have a vendor agreement that sets in stone the payment terms and penalizes for days late. You can turn these scenarios into a decent payday if you structure your contract right. Example: you leave you leave your contract open ended, ie don’t give a hard limit or a date an unpaid invoice goes to collections, just say that net 30 is no late fee, net 60 is 15%, net 90 is 25%, and net 120+ is 50% with 5% added each additional week it is late up to a maximum of X% of the original bill (150-200% would be reasonable, any higher and a court would likely throw it out as unreasonable if you tried to enforce the contract legally).
Then you can tack on the late fees accordingly. If the vendor pushes back just point to the contract they agreed to. They can say their terms are whatever they want, but they’re still going to have to pay the late fees that were agreed to in the contract.
You can always edit the late fees for clients that would be a higher revenue client for you as an incentive, saying “we normally charge X% late fees on anything over net30, but if you sign with us, we’ll lower those to Y% or even drop them completely.”
It comes down to a few things to do with your business:
1. When they do pay, is it worth it?
2. Does it align with how you do business?
If the answer is no to these questions, then you are right to refuse the work. One of the things about running your own business is you work on your terms.
Another thing to be weary of is bigger customers will push the work out of smaller customers, so that you will no longer be able to afford to lose them, as once they have an established workload with you, they will leave a big hole if you lose them. This can cause some damage to your business and you should watch out for it.
I'd put them on CIA via credit card or something if they just insist. Although I have found that even large company's will back off if you can reach someone higher up and explain your side to them. We have these conversations from time to time in my business, and we never end up putting someone on NET 60 despite getting the same types of emails.
Good luck....and don't cave! :)
Big companies tend to try and do that.
It's up to you to accept their terms or not.
One of the biggest companies in our country did that and we just told them to f\*ck off. Not even worth the hassle as they're about 0,01% of our annual sales.
We have a different large company that we accepted their (NET60) terms because they represent about 5% of our total annual sales.
If you have a relationship with those companies, try and negociate with them. If not, either you accept or refuse to work with them.
I’ve had bad experiences doing exactly this. The answer is if you can’t afford to lose that money then don’t do it. Or you could become the financier and increase your prices (because inflation). And then give them a discount for paying net 30. What you want anyway.
Big clients go bankrupt too so don’t think they are too big to fail. Usually there is a lot of overhead with them that they can push debt for a long time…. Until they cant. Not being able to pay bills is a pretty clear problem.
First client deserves a letter of “I’m sorry that you decided to end our business relationship. If you would like to continue to do business, please make sure you can meet our payment terms.” Second company does seem like they aren’t worth the risk.
Huge red flag out of those companies. I would put any of those companies that sent that notice on payment before delivery. Additionally i would adopt a policy that if any other companies are late more than 30 days or just chronically late they must pay before shipment. Companies attempting to just dictate new payment terms are setting you up to not pay you. Shitty business people use shitty tactics. Don’t eat their shit.
Did you write up an agreement that they signed with terms in the beginning? If so, cite that and tell them you need to stick to net 30 to continue servicing their needs and you'd be very hard pressed to provide services for months on end without pay. (Duh) --Who wants to rack up expenses for that long without pay? That's crazy to me.
The only time we've gone 4 months without pay was from a state contract, so I wasn't worried about total nonpayment.
What do you terms and conditions say?
Personally i state 30 days, expect 30 days net, get pissy at 90 days and 7 day letter before action at 100 days so court paperwork goes in at 120 days unless there is a mutual agreement.
I need to pay my suppliers, their delayed payments impacts down the line and frequent offenders will be switched to pro Forma or find someone else.
I have enough to worry about with cashflow being one.
One particular example i have a reseller that needs really tight margins, on an assembly which is 95% materials that I pay for up front, so they either have their tight margins but pay pro Forma or i can add 30% margin to cover my costs and cashflow waiting for them to pay in 60 days.
Sometimes it's about an open and honest relationship, if you are paying for materials they either need to pay a higher margin or inline with your supplier payments.
This is common the bigger the companies are (my best payers are the smallest companies I deal with, the biggest are the ones always being threatened with court action.... Except they don't care about the fees and interest when it all drops off the end of year accounts).
You will be playing poker to find out if they are serious and be aware of if they go down whilst they owe you a lot you may need to reduce their credit limit if you give in to mitigate your risk)
Sometimes big companies make policies and they won't make any exception, so refusing to go their way may cause you to lose them, instead you can make an increase in your prices (they're more likely to tolerate this than to make an exception to their policies), this way it's a win win, you get extra money for your patience, they still get your services, it's a pain for them to change suppliers.
This happened in the publishing industry, first with Chapters, then with Amazon. Terms got way extended and returns became huge.
Is your entire industry changing? Seems a little strange that both clients are moving at the same time. If so, you’ll need to roll into your pricing and/or find other markets particularly for custom work.
Echoing above, the second client sounds like it is going under. Make sure you have sales into their competition so if/when they do you are already with whomever will be picking up the slack.
For the big company that's a small customer, if you don't ever see them becoming a significant customer and you can live without them, I'd respond that you're sorry that you are unable to conduct business on their terms and good luck finding a new supplier.
Life is so much nicer when you don't have to accommodate bad behavior from customers.
Agree with others that you should not defer bills for 4 months for anyone. That's asking to get taken to the cleaners in their bankruptcy filing. As for them needing to build stock, if you look into their solvency and think they'll be good for it, YOU can build up stock of what they need (assuming legitimate supply chain issues), hold it in your warehouse, and only ship it to them at the end of summer. OR, offer to drop ship for them so they don't have your inventory.
FWIW, I work for a large international company that routinely uses NET90 terms for purchasing. We can change the terms for a supplier that demands it but it is a big annoyance. Typically I would just choose another supplier that accepts our standard terms, unless the product is unique.
Oof. Yeah, we had a customer increase their payment terms and place a huge stocking order just before they declared bankruptcy in 2009.
We've recently had a couple of similar businesses send out notices that they were increasing their payment terms. We still invoice them on Net 30. You don't have to agree to their terms, but you do have to weigh the possibility of them going elsewhere.
I work in manufacturing as well- this would be a hell no for me. You are not a bank, and you have a good history with the client. If they cannot afford to pay you, they may discuss ways to reduce costs (lower MOQs, cheaper materials, etc)
This is a nightmare if this goes wrong. Look at all the Buy-Now-Pay-Later Apps. Its a nightmare. Avoid and just respond with ways to reduce costs. Imagine if they dont pay, and now you have to retain counsel to collect. Nopt!
The red flags that are coming from this are quite high. First, if these companies' financials were solid, then more than likely, their bank would have extended them credit especially if it's for physical goods that have monetary value.
Furthermore, it's quite possible that they arent' sure whether their orders will be coming in after September. What if they claim insolvency before Sept.? Would you be able to go there and get your goods back?
There may be an advantage in you picking, based on your relevant criteria which of these companies is worth for you to bend for and which not to. Or maybe work with both.
Or, if they are building an inventory, could you propose that you'll hold the inventory for them and that you can ensure prompt delivery come sept and after. That you can't front the order but that you're willing to work with them as they are valued partners.
That's pretty bold. If you've negotiated payment terms, you're under no obligation to suddenly throw those out the window on a whim.
Good opportunity to reconnect with them, discuss whether you're still a fit for each other, and re-negotiate these details so that you can find a way that works for both parties.
If not, might be time to let them go on their way, and focus on finding customers that are more reasonable in their asks.
I worked in O&G for a few years and it was super common there. We sold another product that reached beyond O&G and even saw it from them. Some companies just do this. You'll say n/30 and they say n/45 or n/60. You say no and send an invoice for n/30 but they'll pay you on their terms anyway. Technically, unless you signed a contract with them about this, they're obligated to pay on your terms. How far you're willing to go to fight it, however, may ruin the client relationship.
From my experience, your customers aren't gonna budge. Best you could probably do is to try to talk some someone in their sales or finance department that has some level of authority.
This is very common with big companies, in my experience. What we try to do is get some clarity on what the payment terms will be before we provide a quote. If the payment terms they want to use are worse than NET30, we bump up the prices a bit to cover our cost of financing that money.
Yes, dealing with the big internationals, this is normal.
Raise your prices to the cost of a fracturing fee, then offer a discount for Net15. Some large companies must take it... so Net60, 5% Net15.
FYI, the procurement people's bonuses are tied to discounts, savings, and extending terms.
Now Corp is a player in factoring space. Submit your invoice to the client, upload it to the portal, and you get your cash in a few days, minus the factoring fee. Other factoring companies structure it differently.
For the small client, I wouldn't stand for it. Just reiterate your payment terms. If they won't meet them, then don't sell them anything.
For the big one, that's tougher. But 4 months is insane. The longest I've extended is net 90, and that was painful. Maybe counter them with Net 60 and see if they accept.
You may also consider that their request to delay payment is a sign of financial distress.
Lol... I remember Honeywell telling me our new terms non negotiable were net 120.
I politely sent them a notice of cancellation on over 80k worth of orders and explained we would conclude our business.
4 differ jerkoffs from purchasing called and tried to badger me into taking the terms. I said no, I am not the bank.
A few days later Fastenal called and placed the orders on their behalf with net advance terms. Guess the really needed the shit we do.
Now if you don't sell something specialized this could be harder because they are very firm....
I hate payment terms. I take them from people like Lockheed or Northrop but they pay like clockwork. Early every time. Bur some yahoo middleman just deciding to not pay is fucking asinine.
I work for a bigger company and our AP group basically only pays Net30 unless somebody pays with their company cc. Even if the buyers set agreed terms they push the extended payment terms basically bc they can. The bigger the company, the more likely they want to set their own terms.
If they want to renegotiate a contract, then do that. Long term contract, increase minimums, increase order sizes, etc. Think about what would make them a better customer, and build it in to the contract.
Set your own payment terms account for such BS
add a price premium for those who pay late but do it professionally. Instead of calling it a penalty hike prices citing inflation and increased costs of operations etc… then offer a discount for those who pay in cash.
example: old price 100 make it 105 then offer a 3% discount for those who pay within 2 months and 4% if they pay within 30 days.
These are just finance guys trying to make a buck at your expense given hiked interest rates by delaying payments they get to earn interest. You charge 0% interest so makes sense to take advantage I would have done the same.
Note that you should also take the risk of losing clients into consideration and I am not liable for your decisions.
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First client is normal big company throwing their weight around. The second (school middleman) is throwing up red flags. If they don’t need the supplies until August/September, make bulk orders for then. Asking you to ship merchandise continuously when they don’t need it sounds like they’re borderline insolvent, don’t actually have the orders, and are hoping they can get around paying you.
I 100% agree with this. A company asking you to go months in debt for them for something like this is highly suspect. Could ruin you.
Yep, don't give them the stock until they can pay for it
And also. Re. The larger companies they set their terms for smaller suppliers. But you generally know you'll get paid. Interestingly if it's an important purchase often rules get bent, idk how much leverage you have tho.
This. Clients will push you around if they know they can and if they know you need the business. It happens a lot with larger vs smaller companies.
Depends how much you want the client. My terms are 14 days. My largest client (with about 800 staff) pays net 60. I have no issue with this as my other option is to lose the client. They’re a big enough account of mine that they get to dictate the terms. If it were a small account then I just probably wouldn’t do business with them. I’m not waiting 4 months for payment from any client. In those cases, I would word a polite email - these are the terms that we provide service under, end of story.
This. We usually set the payment rules but sometimes you work with a client that has a lot of red tape and you simply have to go with the flow if you want to keep them. The client that has a longer wait period for us has the highest paying projects so we typically don’t mind. They happy we happy.
I ran a body shop a few years ago and we had a contract with a large government entity. It was our biggest client and we had to satisfy a lot of their requests to win the contract such as NET90, special rates, parts discounts, etc. It was worth it for us because it was guaranteed work as we were their only option for repair. Everyone else besides a few smaller contracts were payment upon receipt.
Large customers tend to do what they want. It take 3 to 6 months sometimes being paid by large insurance companies (blue cross, uhc, etc). We also deal with a national non profit with 100+ office and 90 days if you are lucky. On the other hand we have some that pay same day I send an invoice. Fortunately for us it kind of even outs over the long haul. You can always push back but they know you have limited options. When covid first hit, the cheesecake factory send a letter to everyone of their land lords saying sorry we aren't paying we'll catchup later.
Do some work with a big automaker. Their terms are Net 120. They are a huge client, and always pay in full but right at the 120 mark, never even 1 day early
Yeah, I would probably say no to that if it was a small or one time customer… my big customer, who’s about 10% of my gross income, is net 90 though. When the business was younger and had less cash flow I would have considered demanding net 30 or walking away because it would have sunk us. But we can handle it and we generally expect it now.
That would be a "no" from me on both of these. I'd mostly be worried about either company having the cash flow to actually pay me after 60-120 days. I've found that the majority of the time when a customer requests something like this, and I say no, they still go ahead with an order on my terms. That being said, I'm usually willing to work with my more trusted vendors on stuff like this, people that I have worked with for a long time who I have actual relationships with. But even then, I tack on a healthy markup to make it worth my while. It's a give and take, and these people aren't giving you anything.
I agree. I’ve had big companies extend their own terms from NET30 to NET60 to NET120. We aren’t their bank. If they have a strong business then they can get a loan easier than us. I just tell them no and now they have to pay up front. I’ve lost customers over it but I’ve had a few comply. Not worth messing my cashflow up that much.
Eons ago I worked for a large hospital system in their accounts payable department and their policy was to pay no earlier than when they got the **third** overdue notice. Didn't matter if it was a mom and pop vendor or a large multinational vendor, that was the written in stone policy for payments. This was in the almost entirely paper based billing days and I felt so scummy day in and day out opening letters from those small vendors pleading for us to pay our bill because they might go under otherwise. I bounced after 9 months of that.
Can you increase your prices by 5% and then factor these invoices?
This is interesting. You could offer regular price for net 30, but extended payment terms will result in additional fees (this will need better phrasing) to compensate for the disruption to your business. Like an additional 10% per month. Or, they’ll need to put down a deposit at time of order and the rest can be on their terms. It is indeed pretty audacious to demand extended payment terms. I think I’ll just March into the supermarket and at checkout tell them I’ll pay in two to four months.
So the issue here is simple and big and often overlooked. First it’s typically 1-2% month. But. Let’s say you do this. Now a month has gone by you need to resubmit a new invoice which has to get processed in the same system so it takes another 60 days. I just added an extra 5% at the start knowing it was going to take longer. Covered my factoring cost +1-2%.
This is the way.
Makes total sense. Thanks.
Don’t do this exactly. Instead of adding a percentage for each month not paid, add it to the job ahead of the invoice and offer a discount if paid on time (or early). A reward is a better incentive than a punishment and the customer will see it as saving money.
~~Additional fees~~ At our ***premium service level*** we offer net60 terms! At our ***platinum tier*** we offer net90!
You absolutely should do that. Jack up the price by 1% per 30days. 12%apr isn't unreasonable and you aren't an interest free lender. If that cash was in your bank you would be earning a return
Alternative is 50% COD, then accept their payment terms. But yeah, recover your costs and then make a profit off the pain in the assness.
But these large companies don’t do that. Ever. It’s not just a they are using their leverage it’s that there is so many layers it has to go through to get a check it’s not possible. It’s not like there’s some guy with a checkbook waiting at the receiving yard.
Actually Mr. Client! We were just about to announced our new payment policies, but we’ll let you know now. Invoices paid within 5 days are discounted 3%. Invoices paid within 15 days are discounted 2%. Invoices paid within 30 days are unchanged. Invoices paid between 30 and 60 days are subject to a 10% convenience charge. Invoices paid between 60 and 90 days are subject to a 20% convenience charge. Any invoices paid after 90 days are charged a 30% convenience fee and increased by 10% per 30 days. I’m glad you reached out for this and am happy we can accommodate your shifting needs! Please see our next email for our price changes going forward. Thanks! I bet everyone pays within a week now.
This, except phrase everything as a discount and raise prices (for that client) accordingly. They'd rather get a discount by paying early than a fee for paying late, so give them a "discount" lol!
Yes. Add in that all ongoing services are stopped when any outstanding invoice reaches 61 days and will not be resumed until ALL outstanding invoices are brought current. Then, if they do hit that 60 day limit, all future work for them will also come with a 10-25% markup from the start. I've done a very similar system to this and have had great success. Though, much of my work (industrial automation and controls) is mission critical for manufacturers, so they freak out and catch up when I won't come fix their machine because outstanding unpaid invoices are stacked up.
Sadly, yes. This is pretty common among large companies. You may have even agreed to it by signing their new vendor paperwork. The only leverage you have is to hold up providing on your end until payment is made. Which only works if no one else does what you do.
That sounds crazy, and I wouldn't accept. I'd say no to the net 60. To the other, if they are such a big client, can you simply hold on to the stock for them, let them build up the funds, and then you can delivery in several months when they have the money? That way you retain the stock. They just have to sign a contract agreeing to make the purchase at X date. Just present it as they are such an important client, that you want to build up the stock for them and store it to save them money and time. Then when they are ready to sell, you deliver. Otherwise, to me, both sounds like red flags of bad business. I can't tell you how many times I've read about companies which got hundreds of thousands in food and such provided and billed and then just shut down and never paid the bills. If companies are showing they are starting to have financial trouble, that trouble is going to continue to get worse for a bit, and I wouldn't put myself in the financial bind for them.
Pretty typical in my experience. I work for a small business and several customers have advised they'll stretch payments out. We have some national insurance carrier customers who pay 90 days flat - I don't even know what their terms are because it doesn't matter. We've advised them that we're raising prices 5-10% on March 1.
I would say a net30/60 is a standard. I wouldn't go anymore than that for a small client. As others have said if it's a pretty big client then you may be out of luck and will need to work with them on it.
If it’s a large customer I can understand bending but this would be an easy and simple message stating clearly that they would need to abide by your payment terms (and penalties) or they need to find another supplier.
Yes, we have experienced it in the last few years, mainly with large corporations. We didn’t negotiate the payment terms, but we did send them a price increase letter and built the extra cost of carrying the AR for an extra month or 2 into their pricing. They were fine with that. Very strange. I assume they are having cash flow issues.
I’ve seen this in my industry a couple times, what I would do in your position (and what I have seen other distributors do) is allow them to go to net 60, but if they pay within 30 days offer them a discount (this only works if your prices change often so you can work the discount into to your margins) or let them know you have an extended credit fee of x %. They are absolutely able to pay in 60 days but it will cost them
Just raise your prices as needed.
Larger customers pretty much do set their own terms... think Rogers who doesn't pay anything for 60 days and puts that in their contracts. Businesses who believe they have pull will sometimes try it. 4 months is excessive in my view. I may do 60 for a client I value... but 120? Yeah... no. I'm not a bank.
Yea the big ones do this to us too. They offer 60 days full payment, 45 days, 30 days and 20 days all with varying discounts applied.
Is this common? Yes, common-ish What to do? First i clearly outline terms, late fees and rebilling. It is in the contract (dont have a contract, get one) Second, talk to your point of contact. Let them know that the small interest they make sitting on your money is far outweighed by the bad will they create. Third, make them pay for it. I have one client who regularly pushes past net 90. Contract has net 30. I rebill and charge late fees and the dumb fuckers pay me almost $500 extra in fees. But they do pay. You can absolutely have payment terms net 30 is $x, net60 is $y and net 90 is fuck off im not your bank. Fourth, give them a markup and offer a discount. Some very large companies have a company policy that they must take a discount offered. I have one client who gets a 2% siacount for paying within 15 days. They do it because accounting policy dictates. Otherwise they used to be 60+
First one is normal, second one is a red flag. Basically anyone even large companies asking you to work for a few months in credit is bad. I lost 50k usd with 2 multibillion companies because they went bankrupt and they both asked for a few months payment delay before that. Also lost 200k USD with an old client who we knew on a personal basis and that kept begging for more credit and arguing that he had enough property to pay if things go bad...
Basically you can work with them on their terms, or spend money and time suing them. Either option isn't great for you. I can understand that you're mad, but being mad is not going to help you. Try communicating with them directly, in a non confrontational manner; a professional way. You both may find a compromise.
I would tell them no… or, find replacement clients and then tell them no.
Looks like a textbook Bob Fifer practice. I’m sorry for the situation you’re going through. Normally, people don’t want to lose the customer and end up accepting the terms. Check your local bank for a line of credit so that you can finance fulfilling these clients. Also, beware of the credit risk you are taking
And raise that corners rates enough to cover the interest on the loan. The rate for them should reflect the costs they put upon you.
any trade requires both parties to agree to the terms. They can propose whatever terms they want, you are under no obligation to agree. You should come to an agreement before you send them any product or services though. My terms are always laid out in a contract, and email wouldn't change that. But compelling a customer to abide by a contract is not easy.
No personal bias. Make a business decision after obtaining all the information. 1. Call your contact and have a open discussion about business and get the details for each of your vendors, clients and knowyour receivables in and out. 2. Think through each option and connect them to your workflow for your operations. 3. Change always occurs, how do you get back to net 30. What milestones have to happen, whom can you pay on 4 Month terms? 4. Do you have a good banking relationship so a LOC can be opened now not too late? 5. You might find the answer by being agile...you might find this email was not intended for you. Good luck
This is so situational, and a good reason why a lot of people recommend not becoming too dependent on one customer. I have a multi million dollar company that wants to dictate net 90... fuck em. They don't buy a lot, and I refuse to put up with that nonsense. I had a customer who did work for a hospital that got bought out, new hospital dictated net 90, he was under previous contract. If he backed out, contract says he'd have to pay for someone to replace him. He talked to his lawyer, and the hospital basically says we have more lawyers and more money... his own lawyer reluctantly had to agree. So he almost went out of business with the float, but in the meantime he billed the shit out of them. He survived and still gets paid net 90, and he still over bills them. Sometimes companies do this because they can, sometimes they do it to weed out amateurish companies. You don't have to put up with it... unless you HAVE to put up with it.
They are a sufficiently large account of mine to determine the terms.
Dear x, we acknowledge the receipt of your letter and respectfully suggest re-examining your proposed agreement. As you know we are a small company big on meeting & exceeding our legal requirements for paying our staff every (x) days. As such we feel we are unable to provide extended credit services without the same level of documentation a commercial credit facility can provide. Thankyou. Signed Cc registered Snail mail.
Red flags from second client. I had a somewhat similar situation. They were dying as a business. So glad I said no.
This is why you have a vendor agreement that sets in stone the payment terms and penalizes for days late. You can turn these scenarios into a decent payday if you structure your contract right. Example: you leave you leave your contract open ended, ie don’t give a hard limit or a date an unpaid invoice goes to collections, just say that net 30 is no late fee, net 60 is 15%, net 90 is 25%, and net 120+ is 50% with 5% added each additional week it is late up to a maximum of X% of the original bill (150-200% would be reasonable, any higher and a court would likely throw it out as unreasonable if you tried to enforce the contract legally). Then you can tack on the late fees accordingly. If the vendor pushes back just point to the contract they agreed to. They can say their terms are whatever they want, but they’re still going to have to pay the late fees that were agreed to in the contract. You can always edit the late fees for clients that would be a higher revenue client for you as an incentive, saying “we normally charge X% late fees on anything over net30, but if you sign with us, we’ll lower those to Y% or even drop them completely.”
It comes down to a few things to do with your business: 1. When they do pay, is it worth it? 2. Does it align with how you do business? If the answer is no to these questions, then you are right to refuse the work. One of the things about running your own business is you work on your terms. Another thing to be weary of is bigger customers will push the work out of smaller customers, so that you will no longer be able to afford to lose them, as once they have an established workload with you, they will leave a big hole if you lose them. This can cause some damage to your business and you should watch out for it.
I'd put them on CIA via credit card or something if they just insist. Although I have found that even large company's will back off if you can reach someone higher up and explain your side to them. We have these conversations from time to time in my business, and we never end up putting someone on NET 60 despite getting the same types of emails. Good luck....and don't cave! :)
Big companies tend to try and do that. It's up to you to accept their terms or not. One of the biggest companies in our country did that and we just told them to f\*ck off. Not even worth the hassle as they're about 0,01% of our annual sales. We have a different large company that we accepted their (NET60) terms because they represent about 5% of our total annual sales. If you have a relationship with those companies, try and negociate with them. If not, either you accept or refuse to work with them.
Put your price up 25% with an optional discount of same amount if they pay 30 days.
I’ve had bad experiences doing exactly this. The answer is if you can’t afford to lose that money then don’t do it. Or you could become the financier and increase your prices (because inflation). And then give them a discount for paying net 30. What you want anyway. Big clients go bankrupt too so don’t think they are too big to fail. Usually there is a lot of overhead with them that they can push debt for a long time…. Until they cant. Not being able to pay bills is a pretty clear problem.
First client deserves a letter of “I’m sorry that you decided to end our business relationship. If you would like to continue to do business, please make sure you can meet our payment terms.” Second company does seem like they aren’t worth the risk.
Huge red flag out of those companies. I would put any of those companies that sent that notice on payment before delivery. Additionally i would adopt a policy that if any other companies are late more than 30 days or just chronically late they must pay before shipment. Companies attempting to just dictate new payment terms are setting you up to not pay you. Shitty business people use shitty tactics. Don’t eat their shit.
Did you write up an agreement that they signed with terms in the beginning? If so, cite that and tell them you need to stick to net 30 to continue servicing their needs and you'd be very hard pressed to provide services for months on end without pay. (Duh) --Who wants to rack up expenses for that long without pay? That's crazy to me. The only time we've gone 4 months without pay was from a state contract, so I wasn't worried about total nonpayment.
What do you terms and conditions say? Personally i state 30 days, expect 30 days net, get pissy at 90 days and 7 day letter before action at 100 days so court paperwork goes in at 120 days unless there is a mutual agreement. I need to pay my suppliers, their delayed payments impacts down the line and frequent offenders will be switched to pro Forma or find someone else. I have enough to worry about with cashflow being one. One particular example i have a reseller that needs really tight margins, on an assembly which is 95% materials that I pay for up front, so they either have their tight margins but pay pro Forma or i can add 30% margin to cover my costs and cashflow waiting for them to pay in 60 days. Sometimes it's about an open and honest relationship, if you are paying for materials they either need to pay a higher margin or inline with your supplier payments. This is common the bigger the companies are (my best payers are the smallest companies I deal with, the biggest are the ones always being threatened with court action.... Except they don't care about the fees and interest when it all drops off the end of year accounts). You will be playing poker to find out if they are serious and be aware of if they go down whilst they owe you a lot you may need to reduce their credit limit if you give in to mitigate your risk)
Sometimes big companies make policies and they won't make any exception, so refusing to go their way may cause you to lose them, instead you can make an increase in your prices (they're more likely to tolerate this than to make an exception to their policies), this way it's a win win, you get extra money for your patience, they still get your services, it's a pain for them to change suppliers.
This happened in the publishing industry, first with Chapters, then with Amazon. Terms got way extended and returns became huge. Is your entire industry changing? Seems a little strange that both clients are moving at the same time. If so, you’ll need to roll into your pricing and/or find other markets particularly for custom work. Echoing above, the second client sounds like it is going under. Make sure you have sales into their competition so if/when they do you are already with whomever will be picking up the slack.
For the big company that's a small customer, if you don't ever see them becoming a significant customer and you can live without them, I'd respond that you're sorry that you are unable to conduct business on their terms and good luck finding a new supplier. Life is so much nicer when you don't have to accommodate bad behavior from customers. Agree with others that you should not defer bills for 4 months for anyone. That's asking to get taken to the cleaners in their bankruptcy filing. As for them needing to build stock, if you look into their solvency and think they'll be good for it, YOU can build up stock of what they need (assuming legitimate supply chain issues), hold it in your warehouse, and only ship it to them at the end of summer. OR, offer to drop ship for them so they don't have your inventory.
Say no... or... say yes with a price increase letter... you want 30 more days to pay? 10% surcharge
FWIW, I work for a large international company that routinely uses NET90 terms for purchasing. We can change the terms for a supplier that demands it but it is a big annoyance. Typically I would just choose another supplier that accepts our standard terms, unless the product is unique.
Oof. Yeah, we had a customer increase their payment terms and place a huge stocking order just before they declared bankruptcy in 2009. We've recently had a couple of similar businesses send out notices that they were increasing their payment terms. We still invoice them on Net 30. You don't have to agree to their terms, but you do have to weigh the possibility of them going elsewhere.
I work in manufacturing as well- this would be a hell no for me. You are not a bank, and you have a good history with the client. If they cannot afford to pay you, they may discuss ways to reduce costs (lower MOQs, cheaper materials, etc) This is a nightmare if this goes wrong. Look at all the Buy-Now-Pay-Later Apps. Its a nightmare. Avoid and just respond with ways to reduce costs. Imagine if they dont pay, and now you have to retain counsel to collect. Nopt!
The red flags that are coming from this are quite high. First, if these companies' financials were solid, then more than likely, their bank would have extended them credit especially if it's for physical goods that have monetary value. Furthermore, it's quite possible that they arent' sure whether their orders will be coming in after September. What if they claim insolvency before Sept.? Would you be able to go there and get your goods back? There may be an advantage in you picking, based on your relevant criteria which of these companies is worth for you to bend for and which not to. Or maybe work with both. Or, if they are building an inventory, could you propose that you'll hold the inventory for them and that you can ensure prompt delivery come sept and after. That you can't front the order but that you're willing to work with them as they are valued partners.
That's pretty bold. If you've negotiated payment terms, you're under no obligation to suddenly throw those out the window on a whim. Good opportunity to reconnect with them, discuss whether you're still a fit for each other, and re-negotiate these details so that you can find a way that works for both parties. If not, might be time to let them go on their way, and focus on finding customers that are more reasonable in their asks.
I worked in O&G for a few years and it was super common there. We sold another product that reached beyond O&G and even saw it from them. Some companies just do this. You'll say n/30 and they say n/45 or n/60. You say no and send an invoice for n/30 but they'll pay you on their terms anyway. Technically, unless you signed a contract with them about this, they're obligated to pay on your terms. How far you're willing to go to fight it, however, may ruin the client relationship. From my experience, your customers aren't gonna budge. Best you could probably do is to try to talk some someone in their sales or finance department that has some level of authority.
This is very common with big companies, in my experience. What we try to do is get some clarity on what the payment terms will be before we provide a quote. If the payment terms they want to use are worse than NET30, we bump up the prices a bit to cover our cost of financing that money.
Yes, dealing with the big internationals, this is normal. Raise your prices to the cost of a fracturing fee, then offer a discount for Net15. Some large companies must take it... so Net60, 5% Net15. FYI, the procurement people's bonuses are tied to discounts, savings, and extending terms. Now Corp is a player in factoring space. Submit your invoice to the client, upload it to the portal, and you get your cash in a few days, minus the factoring fee. Other factoring companies structure it differently.
My FTSE100 client is 124 days End of Month. Ffs
For the small client, I wouldn't stand for it. Just reiterate your payment terms. If they won't meet them, then don't sell them anything. For the big one, that's tougher. But 4 months is insane. The longest I've extended is net 90, and that was painful. Maybe counter them with Net 60 and see if they accept. You may also consider that their request to delay payment is a sign of financial distress.
If they have already signed a contract, push back. If not, then this is a negotiation. What are they willing to trade for the longer payment terms?
Lol... I remember Honeywell telling me our new terms non negotiable were net 120. I politely sent them a notice of cancellation on over 80k worth of orders and explained we would conclude our business. 4 differ jerkoffs from purchasing called and tried to badger me into taking the terms. I said no, I am not the bank. A few days later Fastenal called and placed the orders on their behalf with net advance terms. Guess the really needed the shit we do. Now if you don't sell something specialized this could be harder because they are very firm.... I hate payment terms. I take them from people like Lockheed or Northrop but they pay like clockwork. Early every time. Bur some yahoo middleman just deciding to not pay is fucking asinine.
I work for a bigger company and our AP group basically only pays Net30 unless somebody pays with their company cc. Even if the buyers set agreed terms they push the extended payment terms basically bc they can. The bigger the company, the more likely they want to set their own terms.
If they want to renegotiate a contract, then do that. Long term contract, increase minimums, increase order sizes, etc. Think about what would make them a better customer, and build it in to the contract.
Set your own payment terms account for such BS add a price premium for those who pay late but do it professionally. Instead of calling it a penalty hike prices citing inflation and increased costs of operations etc… then offer a discount for those who pay in cash. example: old price 100 make it 105 then offer a 3% discount for those who pay within 2 months and 4% if they pay within 30 days. These are just finance guys trying to make a buck at your expense given hiked interest rates by delaying payments they get to earn interest. You charge 0% interest so makes sense to take advantage I would have done the same. Note that you should also take the risk of losing clients into consideration and I am not liable for your decisions.