Receiving timely payment/Accounts Receivable

As all my personal bills, and all my vendor's invoices sent to us, we too extend net 30 day terms on all work we do. We do custom work as well, and 99% of our customers have accounts with us so we hardly ever require pay up front. We supply the labor AND the material.

With that said, very few actually pay in 30 days. Is everyone else having this problem? Do you have any ideas on how to reduce accounts receivable? What do you considered timely payment? Any methods or suggestions are certainly welcomed. If you have proven methods- PLEASE- let me know!

Thanks guys

For us, all but one customer pays within 30 days. If that customer sends a PO and they're late on payment, we tell them we can't send the new order until they pay. Then they are good for a couple orders, then they slack again. Usually when you hold out on parts they need, they tend to want to pull out their check book.

Thanks for the response aaront. We start holding orders after 60 days currently, but might have to start changing that. A lot of our customers are large corporations, and I'm afraid we wont have the same pull with holding their orders as we do for john doe at the small mom and pop shop... Either way, something has to be done!

If it takes you 60 days to write a check, just how fricken long do you think it takes to make the part???

Make them buy material... Most of my customers prefer that since they know I will jack them on it... Even if I only
mark it up a bit, its money they can save... If you have a pile of their material sitting in your shop, its pretty
good motivation for them to write a check for past work.

Unless your customer is actually a big company, its usually an accountant trying to play big dog games... Refuse to quote,
refuse to ship, even better when you have their material or their parts sitting in your shop....

We dealt with the "big dog" accountant a while back... We get paid when their employees get paid for anything that has made it
through QC... The new accountant was going to be a hero.

"we need to change your terms to NET 90 or whenever we get paid for the parts" (could literally be years)
"upon further consideration of our financial agreement, we need to be paid COD"
"We at least need to go to NET 60"
"Upon further consideration of our financial agreement, we need to go to CASH IN ADVANCE"...

That shut him up, until our next check was due, and it wasn't there...

A $50,000 assembly that they desperately needed to ship was driven there, in the back of a pickup truck... There was no check, several days late already...
The $50,000 assembly that they desperately needed to ship was slowly driven around the parking lot, in front of everybodies windows, and then
driven out of their parking lot and down the road... The owner was on the phone in half an hour saying the check was ready... We haven't had a problem since.

If you have nothing they need, or own, you are really at a disadvantage... Sucks to be in that position, a good customer won't put you there.

You could start offering discount terms. 2% 10 net 30. Get a 2% discount if they pay within 10 days, otherwise no discount due in 30.

+++Most of us would rather clean the toilets than to work in collections+++

In my way of thinking, your primary objective is to convert slow paying customers into fast paying customers.

Some things I've learned:

Treat people the way you would like to be treated.

There is no such thing as "one method works for everyone".

ONLY YOU should make the collection phone calls - do not put your hard-won clientelle in the hands of a "clerk" who may or may not give a s**t.

Give the mail service enough time to deliver the invoice, then follow-up with a phone call and ask "what day do you have me scheduled for payment". If they say "I won't know `til Thursday", then tell them you'll call back on Thursday. Then when Thursday comes around, call that person and remind them why it is you are calling.

Never wait until an invoice is overdue to begin checking on it.

Never ask "Did you receive my invoice" - it's too easy for them to say "no I didn't, send me a copy".

Keep notes on every conversation - dates, time, what was said, who you spoke to, when you should call back. Never try to limit your collection efforts to a particular day of the week - it's a daily, ongoing process.

If an A/P clerk is giving you the run-around, call back and ask for the owner.

Do not require your salesman to do collections.

Be consistent in your efforts - the squeeky wheel gets the grease.

IT'S YOUR MONEY - do not be afraid to escalate your collection efforts - small claims, liens, district court, etc. Be firm but professional.

There are some customers you are better off without.

unfortunately it mostly depends on how much you rely on the client compared to how much they rely on you. I have a couple large clients... and I love it it when they want to pay with their credit card,, means I get paid by a third party whose main job it is to pay people instead of a third party whose main job it is to delay payment. I have been in the 30/30/30/10% " 60 days after we finally approve the parts off the tool" I did not sign up for that... got drug kicking and screaming into it. If you have something they absolutely need Bob's trick works.... if you supply commodity parts they can get at a dozen shops who don't know them... well you are up a polluted tributary without a proper means of motivation or steering.
Collection agencies are worthless, they have zero power and charge too much. They can say all they want but they can't make the client pay you, only a judge can, even then its a crap shoot if there is not enough cash to go around. Even retail sales you can get stuck with bad checks and credit card backcharges over stupid things....

QuickJobShop said:

You could start offering discount terms. 2% 10 net 30. Get a 2% discount if they pay within 10 days, otherwise no discount due in 30.

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The problem I've found with this is they will blow past your 30 days, pay in 60 plus and still take the discount. So you double fucked yourself and now you are fighting them
over pennies...

When you need the cash and need it now, a good customer will take it... We have one customer that will always pay pretty much COD anyways, so we give him 5% for COD...
He'll pay through Paypal with his credit card to get the miles, and he eats the fees... That's a good customer...

If the problem is causing cash flow issues you could try factoring, we nearly went that way most off our customers are 60 days from months end so its a tough sit, I'm only getting 30 days from months end from my suppliers. But if a company has no payment structure in place its a nightmare and a guessing game as to when your going to get paid, I'd reduce the work your doing for those kinds off companies and by doing so you can look after your better customers and look for new business that's pays on time ever time.

How big are the orders and are they parts for production or repair parts? If repair and relatively small quantities, or even parts and relatively small dollars, consider offering payment by credit card and bill the card on shipment.

Thanks for the response Bob... Unfortunately a large part of our business is the material itself. We are a stainless steel service center, a one shop stop if you will. We sell the steel... and we stock lots of it, but also add services that of a standard machining and cutting center. With that said, we sound like we would be the big dog in the transaction... However we provide to large world wide stainless distributors much larger than us... often big publicly traded companies etc... I think becoming more stern on our credit limits may lose us a few good customers, but at this rate the alternative does not look very welcoming either. It might be time we stand a little taller to some of these big guys.

They are production parts- Usually smaller quantities and high diversification. Invoices may vary from hundreds to even hundreds of thousands... its really a tough thing to manage. We do offer credit card now although rarely use it. That might just be something we need to begin utilizing more though.

Charge appropriately for payers with a history of being late. If they want us to be a bank... then so be it. I tend to bid by customers history if they pay late. We had a customer who constantly was 20 days on net 30. So I pro-rated 18% per year interest on everything I bid to them, just like the Credit card company since I knew how long they would take to pay. On items we had made for them in the past I bumped it slowly over a years worth. The couple of percent increase didn't seem to be a problem to most of them.

There is much more on this forum about this, if you search it out.

The bottom line is, "If you don't have respect for your self, no one else will."

Reards,

Stan-

Getting a handle on receivables starts with the sale - you need to have properly worded bid documents, contract documents, and invoice documents. If you take someone to court for non-payment, it needs to be a clear case of breach of contract.

Perfect (and utilize) a credit check prior to a credit sale - NO EXCEPTIONS!

Don't be afraid to demand money up front for a project when appropriate.

Other suggestions:

Print your receivables weekly, so you stay up to date (mentally) on what is going on.

When you make notes (from when you call people), write those notes on Post-It Notes, that way you can transfer your notes easily from one printout to the next.

Have your secretary print you a copy of any invoice that is beginning to concern you - you'll often-times need to reference it when talking to the customer, and it's expedient to have it handy.

You are in the metals business, not the finance business - don't be afraid to tell people that.

bmc1221 said:

. . . With that said, very few actually pay in 30 days. Is everyone else having this problem? . . .

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You must have missed the other thread on this? Getting paid on time is apparently a terrible idea; because Obama said he thinks it would be a good idea for both suppliers and our economy.

Sadly, if you're having problems now (when interest rates are low), imagine what this will be like when interest levels get back to historic levels and there's an even larger incentive to delay payment. Right now you're just helping shaky customers with cash flow and letting purchasing types get away with customary shenanigans. There's real money to be made (actually, taken out of your pocket) when interest rates are higher . . .

As a service center it wouldn't seem unreasonable to me to make your default payment COD. You'd still have to extend terms to larger and repeat customers; but this would at least give you a starting point for dealing with the issue.

PeteM said:

You must have missed the other thread on this? Getting paid on time is apparently a terrible idea; because Obama said he thinks it would be a good idea for both suppliers and our economy.

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And you must have missed the meaning of naysayers in that other thread Pete!

Paying on-time means making a payment on or before the agreed time period, regardless of COD, Net 30,60,90 or Net-whatever.

The OP is asking about those who do not honor the previously agreed upon terms, thereby become deadbeats.

Now if the POTUS ( whoever that may be, Obama notwithstanding ) makes a bold claim that any government contractor MUST pay their
suppliers on or before the negotiated terms or else loose the option of doing government work, I'll gladly cheer with you.

Short of that however the POTUS is all but grandstanding, and might as well speak up to hookers asking them to close their legs and find legitimate work instead,
because he'd have about the same chance of finding a receptive audience in the targeted group.

Apologies to the OP if this got off track (and FWIW, Seymour, wasn't really thinking of your comments in that thread -- which actually addressed the question).

Main point is that if you're having problems now, when interest rates are low, it will only get worse as these rates return to historic levels. Best to get it under control now.

I always say this. Prioritize work in order of who pays first and is the best to deal with.
It's now disclosed anytime I consider a new customer. Call it mutual respect.

Customers that take the longest to pay are always the most demanding and always think they're the most important company in the world. They're not, let other shops fight over them if you can get better work.

A small group of large men wearing ski masks, gloves, & carrying aluminum bats can work wonders incentivizing your slow payers, but generally speaking, they ain't gonna work cheap!