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Credit terms
What's your policy?
vincevincevince




msg:3786716
 9:12 am on Nov 15, 2008 (gmt 0)

I've been reading various bits of advice about invoice payment terms and the advice given is not to give credit unless the client is a long standing customer or has an outstanding credit report.

In my experience, clients seem to expect 30 day terms out of the box - I've had companies object to the 15 days I usually give to new customers. This seems to be in contrast to what I've read.

Is this industry just plagued with a slow-paying culture? Am I doing something wrong that leads customers to expect not to have to pay when the invoice is issued? How do you handle it?

I'm particularly interested in hearing from anyone issuing invoices due upon receipt, when they start collections on such invoices, and if customers object.

 

D_Blackwell




msg:3786966
 10:57 pm on Nov 15, 2008 (gmt 0)

I probably hold a minority view here, but don't use OPM (other people's money) model in or out.

It does depend upon the industry and if you are wholesaling large orders. We are cash on the barrel head buyers, even in areas where this is not the norm. This gives us the extra clout to demand top service, responsiveness... and frankly, we don't need terms so it is simply easier accounting to pay upfront.

When selling, there are simply many industries where 30 days is the norm (and actual payment norm may be closer to 90 days). These industries and business would collapse if they did not have the ability to float YOUR money. You've got to price that in, because they simply do not have the cash or cash flow to pay you upfront. (This practice, while standard, is an invitation to disaster if companies are not run soundly.)

D&B reports aren't a silver bullet, but you get a pretty good feel for how a company stands within its industry and compare their averages. We just closed a deal with a vendor where the industry averages a quite good 10 day to payment average. This company has been around a long time, has a good reputation, looks to be sound, but is a very slow payer; averaging 40 - 50 days to pay. We know their customer service to be poor, but the product is good, and we will be making large, cash orders so the downside looks acceptable.

When selling, wholesale payment is due on receipt with a percentage penalty for every fifteen days late. Frankly, that's not really our area, and we don't look towards businesses or industries that need to float cash to do business. It's not sound, and not for us. We do this on an 'as necessary' or 'as needed' basis only. Selling, we are primarily retailers, so less of a factor for us than others here.

With webwork/software, we don't even give clients a chance to dig a hole or screw us. X% up front. X% upon completion of X% of the work and so forth. Otherwise, you could wind up having done the work, turned over the work, and never see a nickel. Suing is cost prohibitive in a hurry.

The industry, and which side your on, can make a lot of difference.

Fortune Hunter




msg:3787289
 2:57 pm on Nov 16, 2008 (gmt 0)

I'm particularly interested in hearing from anyone issuing invoices due upon receipt

All of my invoices are due upon receipt. Nobody pays when they receive them. The large majority of my clients pay within 30 days sometime as a usual thing. I do have the occasional slow payer and when I get one I will send a statement at the beginning of the next month with a letter "reminding" them they need to pay this.

Even though I use the "due upon receipt" I know that the normal practice for almost all business is 30 days and I really don't start paying close attention to the aging schedule until I hit the 30 day mark. I also do most of my billing at the beginning of each month as a usual thing which is when statements will go out to people that didn't pay within the first 30 days.

If I don't get payment within 10 days of the statement I start with phone call, typically left after hours on their voice mail explaining I need payment and it is overdue. In almost all cases the phone call after hours gets me a check.

As a usual thing until I get to 45-50 days my collections efforts are soft. I try to not get out a stick unless it is becoming abundantly obvious they are not going to pay.

I have had a couple of hard cases where they didn't pay for months. In those cases I have my attorney send them a collections letter at 60 or 90 days depending on the circumstances and/or my history with the client. The less I know them or trust them the quicker they get the letter. I know this violates the "have a system and stick to it" philosophy, but it seems to work for me.

When I hit 60 days and my phone call and soft letter at the beginning of the previous month don't work I send a stern letter outlining what will come next, which is usually turning over their account to collections (my attorney) and/or other unspecified legal actions. Except for 2 cases in 5 years this step got me the payment. However one note of caution, if you send a letter like this and outline a process that will be followed, make sure you follow it! There is nothing that will embolden a deadbeat quicker than you issuing empty threats and not following through with exactly what you said you would do.

One thing I can tell you is not up for negotiation is once the letter arrives from the attorney the clock starts when I will file a law suit in court. I have the documents in my office and they are ready to roll if I don't have a check by the 30th day after the letter from the attorney goes out...no exceptions. I have never had to go this far to date, but have been fully prepared each time it started coming down to that option.

My philosophy is that if you aren't prepared to go all the way then don't have the attorney send them the letter, because if you do and then don't follow through the deadbeat will realize you aren't serious and may never pay or at least not for a very long time. I feel that I must make a believer out of them.

X% up front. X% upon completion of X% of the work and so forth.

I agree with this statement a 110%, this is a critical step. I always ask for 50% up front and depending on the dollar amount in question a bill for another 30% at the half way point. I have a few clients I don't do this with any longer, but I have been doing business with them for years now and know them very well. In those cases I simply bill the entire invoice after I am finished. I will say that this upfront payment with intermittent billing will save you a TON of grief in collections procedures and/or any amount of legal effort. If people refuse to pay up front then they weren't a real client in my mind.

aspdaddy




msg:3788154
 7:16 pm on Nov 17, 2008 (gmt 0)

I dont think think this industry is any worse than others. A few of things I do to manage cashflows and slow payers

Issue very quickly - dont have an invoice day each month for customers.

Turn up post-project and collect the cheque in person. Combine with some up-sell, acct management etc.

Accept post-dated cheques rather than agreeing a delay in payment.

Pay invoices on a specific day each month by bacs, in the month following that which the invoice arrives. I use the 20th which gives up to 50 days credit but the supplier knows exactly when they will be paid which they appreciate - it also stops any collections from being able to proceed.

paladin




msg:3789332
 1:24 am on Nov 19, 2008 (gmt 0)

Why not try accpeting payment by credit card? You can then put it into the contract that you will charge card number 9999 upon issuing the invoice.

vincevincevince




msg:3789482
 7:50 am on Nov 19, 2008 (gmt 0)

When selling, there are simply many industries where 30 days is the norm (and actual payment norm may be closer to 90 days).

Absolutely - but other than the business having cash-flow problems - I can't see why that needs to be the case with modern banking and accounting systems.

With webwork/software, we don't even give clients a chance to dig a hole or screw us. X% up front. X% upon completion of X% of the work and so forth.

With the up front payment, do you give them 30 days? Or does work only start when money is paid and cleared?

Even though I use the "due upon receipt" I know that the normal practice for almost all business is 30 days and I really don't start paying close attention to the aging schedule until I hit the 30 day mark.

Seems like you are using a 30 days system; but marking as due upon receipt? In which case it's not really an improvement... then again it does mean that by the time an invoice is 30 days old you already have a month of interest / debt recovery charge to add to it.

It's an interesting problem to me as all businesses pay for some things quite happily on demand / delivery but other things they seem to feel they have a right to delay payment for. Quite how you make sure that your services are something they feel they need to pay for right away remains a mystery to me.

I'm thinking of trialling early payment discounts for payment within 24 hours (i.e. cheque posted same day so I get it the next morning).

PCInk




msg:3789558
 12:33 pm on Nov 19, 2008 (gmt 0)

The standard most companies I deal with (in the UK) are 30 days from end of month.

This means if you invoice in January (and it doesn't matter if it is the 1st or last day in January), payment should be made by the end of February.

This way, all of January's invoices (if there are a number of them) should be paid together.

Shaddows




msg:3789571
 12:57 pm on Nov 19, 2008 (gmt 0)

The standard most companies I deal with (in the UK) are 30 days from end of month.
This means if you invoice in January (and it doesn't matter if it is the 1st or last day in January), payment should be made by the end of February.

This way, all of January's invoices (if there are a number of them) should be paid together.

Thats how it works with most of our suppliers. Some though are x days from invoice, which is a pain to administer.

The thing about the 30-days-from-end-of-month approach is that it could be 60 days from invoice to payment. I agree with previous posters that funding the cash-flow gap should be charged in some way- one way would be to build it into your margin.

A friend runs a largish company. He builds it into his margins, but offers 5% discount for early payment (I cant remember what constitutes 'early' and it may even be sliding scale depending on earliness)

In regards to the OP, we NEVER give credit to new customers (but then we sell widgets rather than services), except within tight criteria (education, gov, and sometimes PLC), but when you do give credit we give the expected 30 days (from invoice, not end-of-month). Any shorter period seems somewhat arbitrary.

I think people tend to expect (as opposed to prefer) credit where Quality is subjective and variable. For example, a train service is objective- you get from A to B. Web work is subjective- not just was it delivered, but do you approve of the content and layout.

D_Blackwell




msg:3789692
 4:00 pm on Nov 19, 2008 (gmt 0)

With the up front payment, do you give them 30 days? Or does work only start when money is paid and cleared?

We will have probably already provided some level of 'on spec' consultation/advice to close the deal and everyone is ready to move forward. Further work or beginning of project begins only after money is paid, which is usually straightaway. (People that write checks 'only on the 1st' or what-have-you usually find a way to write a check if it is the 6th and they want to get things moving:)) Clearing is rarely an issue, so we don't much worry about that. Only an issue if the near the end of the road something has soured, decisions reversed, project creep (but not wanting budget creep)... but this stuff usually smells from a long way off and we stay ahead on money, or at least even because of completed worked that hasn't been turned over or launched yet. Sometimes the last payment has to be cleared before we give away leverage.

Always to try to separate critical pieces so that there is always a key piece of worked absolutely needed in the next phase or payment block, or they are screwed. Makes it less likely that you'll be messed with so long as you control a key piece of the puzzle at all times.

Fortune Hunter




msg:3790837
 9:36 pm on Nov 20, 2008 (gmt 0)

Seems like you are using a 30 days system; but marking as due upon receipt? In which case it's not really an improvement

I disagree that it isn't an improvement. While I have no scientific evidence to back this up it seems to me that almost all businesses will push whatever time frame you give them to pay. If you say 30 days they will end up paying around 45 days or so if they are conscientious, if they are not they may pay even later.

My thinking is if I say it is due on receipt that they may still take 30 days to pay because as I said I believe they all push the limits, but some will pay within a few days of getting the invoice which is always better. I don't charge late fees or interest until the client hits 45-60 days. I figure by that time, especially 60 days they are beyond pushing the limits and more in the territory of using me as a bank to finance their operations, which I will not tolerate.

Remember getting people to pay on time and keeping cash moving through your business is as much an art as it is a rule or system. In an economy like we are experiencing now cash is a problem for everyone so any finessing I can do to keep people from stretching payment out too long is good for me.

D_Blackwell




msg:3790857
 9:58 pm on Nov 20, 2008 (gmt 0)

My thinking is if I say it is due on receipt that they may still take 30 days to pay because as I said I believe they all push the limits, but some will pay within a few days of getting the invoice which is always better. I don't charge late fees or interest until the client hits 45-60 days. I figure by that time, especially 60 days they are beyond pushing the limits and more in the territory of using me as a bank to finance their operations, which I will not tolerate.

Remember getting people to pay on time and keeping cash moving through your business is as much an art as it is a rule or system.

How people pay can say a tremendous amount about the character of the person or company, and this is valuable information that can be used to handle them as orders and situations fluctuate. For example, we have a business that operates as I do. We ship the order and PDF an itemized receipt with tracking number and the whole nine yards. He knows us and how we do business. He cuts the check instantly, and we recieve it about the same day as he receives the order. We have another customer that cuts checks on a set and rigid schedule. Only timing slows payment, but we always know when it is coming. Then there are the masses that live on OPM and will float OUR money for as long as they can. We don't tolerate it, and luckily most of our interests are in markets where outrageous payment delays are not an issue; wouldn't want to be. Construction? OMG! Not in it myself, but very close to someone who is involved in large projects. Nobody pays anybody anything for as long as they and their accountants and lawyers can stretch it out.

Fortune Hunter




msg:3791541
 6:16 pm on Nov 21, 2008 (gmt 0)

Construction?

Nobody pays anybody anything for as long as they and their accountants and lawyers can stretch it out.

You have to wonder if the industry has always been like this or if enough people just didn't stay on top of receivables that the reputation became a norm in the industry. I am not sure if it works that way, but if it does will the web industry become that way, especially if we let it?

vincevincevince




msg:3791983
 9:31 am on Nov 22, 2008 (gmt 0)

We ship the order and PDF an itemized receipt with tracking number and the whole nine yards. He knows us and how we do business. He cuts the check instantly, and we recieve it about the same day as he receives the order.

I do realise that's a goods invoice; but that's just how I wish things would work in the web industry. As for delaying payment until you are sure things look as you want them; so far as I'm concerned, the moment the written specifications of the project are met the payment is collectable, whether the client loves or hates the results (quotation is based on specifications; same should hold for payment).

will the web industry become that way, especially if we let it?

In my experience, the web industry is already that way, especially when it comes to dealing with larger companies and government. The bigger question is how we reverse the damage!

Essex_boy




msg:3792079
 3:02 pm on Nov 22, 2008 (gmt 0)

I used to work in teh credit control office oflarge multi national granting accounts that would buy a house in most cases, hardly anyone paid on the nail. Two big exceptions were Boots the chemist chain and the Royal Mail.

Our average collection was 51 days on a 30 day invoice.

My technique was to review the firms accounts and balance sheets then carry out a phone interview of the director(s) applying.

Just to see how switched on they were, which could often be a worry.

Rarely did we get a non payer and when we did it tended to be accounts that were old and hadnt been reviewed in years.

[edited by: Essex_boy at 3:04 pm (utc) on Nov. 22, 2008]

pageoneresults




msg:3792086
 3:22 pm on Nov 22, 2008 (gmt 0)

What's your policy?

For Internet related business, in most instances, Due on Receipt.

My traditional print clients? 30, 45, 60, 75 and every now and then a 90. I work straight commission and have from day one. At day 75 I lose 50% of my commission. At day 45 and beyond, I get notified until the payment is made. At day 60, the system automatically puts the client on credit hold. It takes an act of someone with pull (usually me) to override the system and get orders entered even though they are over 60. But, when I override, I immediately accept responsibility for the payment.

I would never offer Net 30 anymore, ever. I've seen how businesses abuse the Net 30 and their relationships with vendors. I've been on the receiving end of it and don't like it one bit, especially when I lose 50% of my commission because you like to stretch things to 75-90 days. I have fired more than a handful of clients who don't pay their bills on time. They are not worth the time and effort involved to collect, not one bit.

It didn't take me 90 days to deliver the product, it shouldn't take you more than a few days to cut a check after receiving my invoice.

These days, we bill in advance, mostly in a retainer business model. You're not going to "owe me" any longer. I pay my bills on receipt, I expect you to pay mine on receipt or within 24-48 hours after receipt. If you don't, guess what? Service actually suffers by default. Cause and effect. We are in a "gotta have it now" environment. The Internet does not have terms.

RIP Net 30

It is the Net 30 that causes companies to establish credit lines. Their customers stretch payment, now they need to tap into a credit line to pay the vendors. We like taking discounts so we are going to pay in 7, 15, etc. If you go 60, 75, 90 with my terms, the discount I've taken advantage of usually becomes NULL due to the monies involved in collection.

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