The Ends Don't Meet

Offering terms of payment is fairly common in business. Many vendors offer a 30-day net, some offer 10 day net, and another few allow a bit of a discount if we pay early. This is fairly typical.

I do not get the option to tell my vendors when I will pay. The vendors have the right to tell me as their customer what they will allow.

As a consumer, you do not get to tell a retail store that you will pay them differently than what they expect. You don't get an opportunity to tell your lender that your loan payment will only be made quarterly. And you certainly don't have the option to tell you car dealer that you will be driving the car off the lot, but financing will be completed after 90 days.

As a small business, we experience situations that become a bit stretched out. We have customers who completely ignore the due date on invoices because they have their own payment terms of 45, 60, 90 and sometimes 120 days. We have a customer who only pays quarterly. We have experienced customers who take a discount even when they are 60 or more days overdue.

Consider this scenario: A customer asks us to do a job on the 1st of October. I order material and we get started on the job that afternoon (the material invoice will be due Oct 31). The job is completed and invoiced on Oct 7. Our customer isn't expected to pay us until Nov 6 (there is already a gap between payable and receivable). On Nov 7, I call the customer to see where the payment may be in their system. This is when I'm told about their payment terms, or that they pay quarterly and we missed the deadline for invoicing (in other words they didn't ask for us to do the job until it was passed their deadline). Quarterly payments will be made Dec 15 so we can't expect a check until late December.

I decided to test this theory a few months ago and called an unknown vendor for material. After placing the order, I told them I would be paying in 90 days. It's the new payment terms for our company. My company has a AAA credit rating and great references, but it didn't seem to matter. After a little conversation with the Accounts Receivable people, the order was canceled. They decided to be offended that the customer would tell them the payment terms they would accept.

So now I know I have the right to be offended by the customers who do this to us. Our customers who pay in 45 or 60 days now have an up-charge on each of their invoices. The customers who would normally pay in 90 to 120 days and the one who pays quarterly are now cash only. The customers who take the discount even when they pay very late have a double up-charge.

The small companies and/or sole-proprietors are not guilty of this financial insanity. It is invariably the large over-stuffed companies who are too big for their breeches. It is the monstrous companies with suffocating red tape who do this. It is the companies who number their employees instead of naming them.

In my experience the little guys never expect special treatment. They treat business like business. They treat everyone with a friendly-professional manner. Maybe the difference is that the big dogs forgot where they came from.

If you're thinking of starting a business, consider what may happen to your budget if you're expected to pay bills for several months while not getting paid for your work. Some of our neighboring businesses suffer through complete non-payment, to the point where it must become a write-off. Fortunately, in my experience, this has only happened once with a very small invoice. (knock on wood)