Collecting Payment from a big customer

[Garwood]

I would change them to credit card COD immediately and that is that. COD means the work is paid for before the parts leave your possession.

That's how I handle stubborn customers. I've never done terms and never will.

 

[kb0thn]

OP, it sounds like you are new to owning your business. What you are experiencing is pretty much standard for a lot of large organizations. Not all. There are some large organizations that are great customers. But a lot just don't like to pay.

Be persistent. Daily e-mails and phone calls. Hold parts when their account goes past due. Add a fee to future invoices to cover your time and interest that you expect you will spend getting paid. 20%? Then offer a 17% discount if they pay with credit card at time of order.

When holding parts based on account past due, have a good relationship going with the requestor so he can rattle cages internally to get you paid. Once you feel like there is progress being made, release the next part. That keeps you in good relationship with your requestor (maintenance manager?) because you need him.

After the fact interest fees and what not are *very* hard to collect from big customers. Early in my business career Verizon paid me at 100 days or something. Back when I really needed the money and it was quite the hardship. I had a 18% interest for past due accounts on the bottom of each invoice. So I billed them for interest each month. But really that was just opening a huge can of worms on my end. Originally I had one purchase order from Verizon that needed to be paid. And then I ended up making two invoices for interest that didn't have a Verizon purchase order behind them and it became apparent to me quite quickly that I was going to have *no* luck trying to get those paid.

It has been my experience that the companies that play these games to have a way around it because they do legitimately need parts. They are dumb, but not so dumb as to shut down profit generating facilities in an effort to avoid paying for a part. As everyone has mentioned, purchasing credit cards are common. Or even managers buying stuff on their own cards and getting reimbursed. Or some businesses that deal in cash have ways of doing on site cash disbursements.

We used to have a Canadian construction company that was absolutely awful about paying us. Always a fight. We would only get paid when they had a system down and needed parts or service from us. And then I would make them get their account current before doing anything new. For years. And then we started getting listed as a credit reference for them. So their new vendors would call us to ask about their credit. And we would tell them the truth. Finally I asked my contact within the construction company what was up with listing us as a reference since they were hardly an account in good standing. Apparently my collection strategy and vitality to their business was enough that we were getting paid better than any of their other vendors so we were the best reference they had...

 

[Kingbob]

Yeah sadly this is just how it is dealing with big companies. I once left messages with the secretary for every VP at exxon who's contact info I could find online about overdue invoices. I thought we might be going out of business at the time (2008) so I figured we had nothing to lose poking the bear. I don't know if it helped but we did end up getting paid. It really sucks, I wish the IRS or SEC would require by law intrest be paid as it IS a loan from a small business to a big business after a certain point.

 

[BT Fabrication]

Most larger companies all around here play the game, Mine are all due when parts get delivered, no net 30, no net anything. yet they still take 5-6 weeks to pay for it.
Mind you I have a concrete guy I need to pay, he said he would pick it up cash deal sort of thing. Yet haven't heard from him for 2 months now..... had the money here right after he got done the job and hasn't been around since, no contact or anything.

 

[DouglasJRizzo]

Most big companies that have need-it-yesterday type work have engineers or maintenance guys with company credit cards. That way it doesn't have to go thru purchasing.
It might be worth it to accept credit cards for payment.

Exactly what I had to do. I got *really* tired of chasing invoices.

 

[HuskyNut]

Suggestion: Get a credit card number from them, and agree to not charge against it until net 30 days, with a established $ credit limit. If they won't do that, cod going forward.

 

[triumph406]

I had Yarde Metals tell me a month ago they got hacked and dont have access to something in their software and cant receive checks. Only ACH transfers and Wire transfers for the moment. I have to call them and figure out what I need to send them some money.

It must happen all the time with bigger companies that rely on software.

Look at the e-mail address that came from, assuming it was via e-mail

Got the same communication from my anodizer. Looked at the e-mail address and saw it was incorrect. Asked us to update our paying arrangements via ACH

Called the anodizer to tell them I'd recieved this e-mail, anodizer said a lot of their customers had called as well to tell them this e-mail was going around

 

[triumph406]

Most big companies that have need-it-yesterday type work have engineers or maintenance guys with company credit cards. That way it doesn't have to go thru purchasing.
It might be worth it to accept credit cards for payment.

Except it'll cost you 3% to run the card if you use a CC.

So I hide an extra 3% in the quote when I know I'm going to get a CC payment.

The company maintenece guy who pays with a CC the most said DO NOT show a 3% fee on the invoice, or else the accounting dept will freak out.

Also most CC's have a limit, if the invoice is say around $12k, typically that gets paid by CC $4k for 3 months. That's how it works with the company in the previous paragraph. I;m ok with it. I know some can not wait that long, some will think it's bad business, some who don't have a business will have an opinion.

 

[Covenant MFG]

Yeah my use of the 2% late payment fee is really just copying another shop friend who does the same thing, as a "hey hurry up" pokey-stick than any real compensation. Never actually enforced that before, but I'm only about 2 years in to this whole shop thing anyway.

 

[Covenant MFG]

OP, it sounds like you are new to owning your business. What you are experiencing is pretty much standard for a lot of large organizations. Not all. There are some large organizations that are great customers. But a lot just don't like to pay.

Be persistent. Daily e-mails and phone calls. Hold parts when their account goes past due. Add a fee to future invoices to cover your time and interest that you expect you will spend getting paid. 20%? Then offer a 17% discount if they pay with credit card at time of order.

When holding parts based on account past due, have a good relationship going with the requestor so he can rattle cages internally to get you paid. Once you feel like there is progress being made, release the next part. That keeps you in good relationship with your requestor (maintenance manager?) because you need him.

After the fact interest fees and what not are *very* hard to collect from big customers. Early in my business career Verizon paid me at 100 days or something. Back when I really needed the money and it was quite the hardship. I had a 18% interest for past due accounts on the bottom of each invoice. So I billed them for interest each month. But really that was just opening a huge can of worms on my end. Originally I had one purchase order from Verizon that needed to be paid. And then I ended up making two invoices for interest that didn't have a Verizon purchase order behind them and it became apparent to me quite quickly that I was going to have *no* luck trying to get those paid.

It has been my experience that the companies that play these games to have a way around it because they do legitimately need parts. They are dumb, but not so dumb as to shut down profit generating facilities in an effort to avoid paying for a part. As everyone has mentioned, purchasing credit cards are common. Or even managers buying stuff on their own cards and getting reimbursed. Or some businesses that deal in cash have ways of doing on site cash disbursements.

We used to have a Canadian construction company that was absolutely awful about paying us. Always a fight. We would only get paid when they had a system down and needed parts or service from us. And then I would make them get their account current before doing anything new. For years. And then we started getting listed as a credit reference for them. So their new vendors would call us to ask about their credit. And we would tell them the truth. Finally I asked my contact within the construction company what was up with listing us as a reference since they were hardly an account in good standing. Apparently my collection strategy and vitality to their business was enough that we were getting paid better than any of their other vendors so we were the best reference they had...

That's correct, I'm within the first two years of this. This is all very helpful, thank you.

 

[moosesgunsmithing]

I charge for storage and all work is COD. Something I've learned the hard way, if it leaves and you aren't paid you are SOL.

 

[cnctoolcat]

In today's America, there doesn't seem to be a lot of excess, qualified, contract machining capacity to go around.

So unless the work you are doing is stupid-easy, chances are your customer won't have much luck finding another shop to do the work for a fair price. And certainly most well-established shops are going to have strict credit terms, and customers like that just aren't going to be able to get by with it.

Now's the time for shops to stand up for themselves with the slow payers. Like said, at least start ringing the bells and keep ringing until money shows up. And after a few times of doing this to get paid, start jacking the prices.

And tell whomever is issuing you the PO's exactly why you are raising prices. Shops aren't beating their doors down, like they may try to get you to believe. And the few that may be are either unqualified, or will quote sky-high.

ToolCat

 

[DanASM]

Look at the e-mail address that came from, assuming it was via e-mail

Got the same communication from my anodizer. Looked at the e-mail address and saw it was incorrect. Asked us to update our paying arrangements via ACH

Called the anodizer to tell them I'd recieved this e-mail, anodizer said a lot of their customers had called as well to tell them this e-mail was going around

I will have to check, but I am pretty sure I got a mailed letter from Yarde, and an email with all the accounts receivable people cc'd on the email.

I was going to call them first anyway.

 

[john.k]

There are that many hacks and frauds relating to online payments now,id be ultra nervous all the time ........every couple of days I hear of big payments siphoned off by hackers that have taken oven whole company accounting structures ,or just altered a few details on websites........confirm person to person via voice contact before transferring money ,dont rely on email

 

[EmGo]

Yeah my use of the 2% late payment fee is really just copying another shop friend who does the same thing, as a "hey hurry up" pokey-stick than any real compensation. Never actually enforced that before,

And I think it's almost impossible to collect even if you get serious. An accountant once told me a better way to do that is raise the price substantially, like 10%, then offer a discount if it's paid on time. That way you're not adding interest, which they will ignore, but offering a discount, which they don't deserve if they pay late.

That never worked for me either but it's still a good idea I think ... finally went COD which was a blessing and a godsend but not everyone can do that.

 

[Covenant MFG]

How does that work out practically, for the discount thing? Seems like the best way to approach this issue, but I can see "If you pay early/on time, you get X% discount" and then I have to send two invoices with different line items? Or just the invoice with the discounted price?

 

[boosted]

And I think it's almost impossible to collect even if you get serious. An accountant once told me a better way to do that is raise the price substantially, like 10%, then offer a discount if it's paid on time. That way you're not adding interest, which they will ignore, but offering a discount, which they don't deserve if they pay late.

That never worked for me either but it's still a good idea I think ... finally went COD which was a blessing and a godsend but not everyone can do that.

Whenever I've tried discounting schemes with big companies it's just been "Oh, we don't do that." So they pay late late anyways and at the discounted price to boot.

We've got a couple of big customers that easily turn NET30 into 60 - 90 days every time. And a couple of more that are just NET90 from the onset... These big companies think they are saving money by nickle-and-diming their suppliers. As your customers grow, you just have to learn to carefully manage that cashflow and play the stupid games.

The P-card thing is awesome, but hard to scale IME. You probably aren't going to do $1,000,000 a year on credit card transactions. For most of us, getting a 20k order every month or two from an engineer who will pay you COD on credit card is just a nice bonus, not something you can build a business around.

 

[john.k]

Pretty common strategy around here .... big business hangs out supplier to dry for $X millions........supplier goes bankrupt....big business settles for cents in the dollar...unpaid debt disappears.........big business AAA credit rating unaffected.

 

[EmGo]

How does that work out practically, for the discount thing? Seems like the best way to approach this issue, but I can see "If you pay early/on time, you get X% discount" and then I have to send two invoices with different line items? Or just the invoice with the discounted price?

It's actually traditional to give "terms: 2% 10, net 30" and that goes on the bottom of the invoice. Then the price is the inflated price, period.

If they don't pay in ten then they owe the full amount, no two invoices needed or anything and it has the advantage of "this is the price" in small claims, rather than "they owe this interest" which is pretty well unenforceable.

But all of this depends on the honor system and accountants don't have any, so it's a moot point. Still a better way to do it tho, I believe.

I think toolcat's got it right on this, in the present - if they don't pay, dump 'em. You don't get to tell the checkout lady at Safeway "send me a bill and I'll cut you a check in 90 days" (as long as you beg and plead and cry and call me up ten times trying to get your money).

Fuck 'em. You can probably get a job at Burger King that pays more anyhow.

 

[Sandy Zhu]

We have a customer 's bank account suffered the same thing last year,but we have cooperated for more than 10 years and their payment is always timely,so we continued to suppy parts to them with no payment,finally after about 3 mouths their account got reactivated and we got the payment. the pressure is huge when we didn't know when we can get the payment.
I would say if it's a newish customer I would not to suppy parts to them if their payment overdued 1 month,I would tell them I'd like to cooperiate with them but we need cash flow to maintain a normal production.we need to cut loss in time,If they're serious about working with us they'll figure something out to pay for us.