How long do you give your customers to pay you?

JW Machine · Jan 20, 2009

I am a one-man shop and generally expect payment upon delivery, or at least within a few days when it's someone I know well enough to trust. I recently made a few prototypes for a customer who is planning to significantly increase their order volume, and while we were discussing terms for large orders he expressed his desire to be on net 90 or net 120 payment terms with me. I am not a banker and have no desire to be either borrower or lender. I pay all my vendors in 30 days or less and expect the same from my customers. How do the rest of you deal with payment schedules- do any of you permit this much time to pass before payment?

Comatose · Jan 20, 2009

No. Right now we're lucky if our net 30 guys are paying in 45. Net 120??? They'd get around to paying me... about February... of 2010...

Net 15 I like. Net 30 I tolerate. Net 60 I'll only do for piddlingly small orders from obnoxiously large companies, like when Boeing orders a whopping $150 worth of stuff.

Net 120 off a prototype to me means that they're going into production with a new product, and don't have the money to actually pay for it. They're counting on the product selling in order to recoup the manufacturing costs. If it doesn't sell as quickly as they hope, don't expect to be paid.

SeymourDumore · Jan 20, 2009

Boy, that's a tough one.
I have 4 major customers, all of them are on the "pay whenever" basis.
1 will typically cut a check rightaway, one is usually 45-90 while the other two is really as it says... whenever.
The thing is though, we know each other and know that there is no financial issues whatsoever. Their cycle is ... well whatever it is, we all make out OK at the end.
Now, you either have to be well financed for this OR be able to build up for it over time. For me it is the latter. Over the years I've saved up enough to be able to carry a large receiveable and got to know the customer well enough.
Having said that, for new customers I would like to get paid net30. I never ask for COD as it ( for me anyway) looks kinda unprofessional or underfunded. Neither leaves a positive mark on you.
Sometimes though you gotta ask for something up front because the investement required on your part, let it be time or material.
120 right off the bat for a new customer.... I would typically stay away from.

memofornow · Jan 20, 2009

Walk in customers are 1/2Down Balance C.O.D.

Most Gov't work I do is for the labs and those guys carry credit cards.

All others are negotiated at the issuance of a P.O. and their D&B# comes into consideration.

Memo

Guest · Jan 20, 2009

Net 120 definitely sounds like they want you to finance a new product line or they have money problems, I would say a big fat NO to that! Calling C.O.D. unprofessional, is unprofessional in itself. Extending credit to everybody and their brother is not wise in this economy, I have had 2 open accounts file bankruptcy on me in the last 2 years and I think
a third is close, and these companies used to be good payers! There are plenty of companies
maxed out on their credit and are searching for new people to string along, beware! Wanting
net 120 out of the gate doesn't pass the smell test. Net 60 with the customer fronting the tooling and material money would be as far as I would go, then when he doesn't pay all your
out is time. That's my 2 cents.

Timw · Jan 20, 2009

I give my customers 5 maybe 10 minutes to pay. Why so long? Some bring checks and write slow.
I always like the old sign- I HAVE A DEAL WITH THE BANK, THEY DON'T DO MACHINE WORK AND I DON'T LOAN MONEY!
Another old favorite- YOU WOULDN'T TAKE YOUR OWN BACON AND EGGS TO A RESTURANT, DON'T BRING YOUR OWN PARTS TO ME!

Ox · Jan 20, 2009

I don't git that last one?

One sign that my chumms dad had made for many'a local business reads "Nothing brings a smile to my face like CASH!" And another reads "In GOD we trust. All others pay CASH!"

Funny thing is that he had a hard time collecting from some folks. :crazy:

However - on the subject:

60's as far as I go. I hold parts after that. Enything beyond that I expect notice that something way beyond your control has happened and what the plan is. Beyond 60 and you are burning bridges here. Not saying that you wouldn't git credit ever aggin - but would Shirely be more sceptical and cautious.

Agreeing to 90-120? You can have it. I aint going there in the forseeable future. (This lifetime) I don't need werk that bad. If those folks go out - 120 days of receivables would take out most shops! (You wait and see what Tier 1 looks like by the end of the yr!)

---------------

Think Snow Eh!
Ox

rockfish · Jan 20, 2009

I put terms of Net 30 days on all invoices, but I have a customer that specifies on their purchase order that any orders accepted are under their terms of 60 days.

After you set terms, then you get to see if they really stick to them. Good luck !!!

77ironhead · Jan 20, 2009

typically, I give the amount of time it takes the average person to pull their wallet out.....as far as unprofessionalism goes (no disrespect to Seymour), I'd much rather look a little unprofessional and have cash in hand than look professional standing in bankruptcy court.....

I suppose I'd allow net 30, or 60, or whatever...the only catch is they get their parts net 30, or 60, or whatever, too

for a customer like Rockfish's, whose PO calls out a net 60 as a condition of getting the job...there's the door, plenty of other shops in the area.
I pretty much have the attitude that the customer is buying my time, not machine time, so they can pay on my terms.

len_1962 · Jan 20, 2009

when i had my shop this is how i set it up:

New customers 1/2 down and C.O.D when picked up or UPS
established net 30 even if they say their terms were net 45 or longer.

i told them you are coming to me to get work and you do not dictate my terms, if you go to Best Buy you either pay cash, check or credit card i'm the same.

then the ones who stiffed me once! IT'S C.U.F if they want their work done.
You ask whats C.U.F. is? (CASH UP FRONT), hey they didn't pay for over 6months and i had bills to pay myself.

David Carlisi · Jan 20, 2009

I'm net 30 with all of my customers but one. He is net 120 because he does homeland security work, and often has to wait a very long time to get paid. (I know him fairly well, or I would not accept these terms.) On the net 30, I generally give them an additional 15 day grace period. After 60 days, I start calling and will not do any more work for them.

All that being said, I would not go net 120 with a new customer. Red flags all over that one.

JCSparks · Jan 20, 2009

I'm a 1-2 man shop also, I put 30 days on the invoices, but most of my customers pay between 45 and 90 days. If it is a customer that I know takes 90 days I add a finance charge rite into the quote. To keep a cash flow going I offer 2 of my customers a 2.5% discount if they pay in 10 days.

david n · Jan 20, 2009

If they want net 90-120, you are financing their business. Don't do it! Get set up to take a credit card. It might be a PITA, but you'd get paid and they can finance thier own way on their plastic. That may not be the answer, but waiting 6 months for payment is a long time. If they want a line of credit, they can go to a bank, not to you. I guess I'm blessed with most of my customers. I make a lot of items for different areas of the gun and arms industries. I never met a better bunch of customers. They all pay either up front or the minute they recieve parts. I don't see this in any other areas of industry that I make parts for. Coincidence? I don't know. I just picked up a new arms customer about a month ago that sent the check for parts before I gave them an official quote, just some pall park numbers in a phone conversation. Can't beat that! Just let this customer know that you are not comfortable with those terms and if they want parts, they can pay net 30. You may lose them, but who knows how much you could lose if you made parts and never get paid because their product doesn't take off. I'd even be worried of not getting paid with net 30 just because they are asking for 120. Get them to give you a hefty down payment before you even lift a finger.

spock · Jan 20, 2009

Sounds to me like they want you to be their venture capitalist. I have learned the hard way, do not be embarrased about setting pay terms that are reasonable to YOU. Anybody can dangle the "big job" and try to get better price/terms. Dont fall for it.

Ox · Jan 20, 2009

Anybody can dangle the "big job" and try to get better price/terms. Dont fall for it.

That statement rings of "Nobody else will either". I find that completely wrong.

Someone WILL take that big job on at high risk terms!

I sent someone packing with a carrot/stick like that last yr. They had what looks to be on the quick glance a nice package, but with the terms they had - I may as well have had the product line myself. I told them what I was willing to doo for them - nicely... Never heard back. I am sure someone will jump at it - not really weighing the risk/WIP/margin. (Or simply not understanding that point?)

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Think Snow Eh!
Ox

77ironhead · Jan 20, 2009

Doug said:
I could have written Seymour's post. Very close to the way I've operated for 30 years.

I know most all my customers, I know their families, most of them have been to my house and I've been to their's.

My main customers go back 20+ years. We have "working relationships". Our companies worked and grew together (although I never wanted to get big, most them have).

Maybe it's the more laid back Pacific Northwest, but I can't imagine having the almost adversarial relationship with customers I see so much of here on the forum.

in many ways, I wish I had that kind of relationship with my customers....to be fair, I do have a couple of 'customers' who I've known/done business with for many deals over several years. They, and I, have traded meals, home visits, etc....but once they've crossed into the realm of settin' down at my table (I'm real particular who I'll share a meal with), they've crossed out of the customer realm and into friend territory, and different rules apply. One of my friends (who started out as a customer), can get work done with a phone call only. I don't even quote a price, and most times don't even technically charge him. At some later date, I end up needing parts from him, and the same applies- I make a phone call, and he delivers.

HuFlungDung · Jan 20, 2009

Ox said:
~snip~ They had what looks to be on the quick glance a nice package, but with the terms they had ------------

Think Snow Eh!
Ox

Hey, isn't one of the 100 great things about being a man supposed to be that no one glances below your face when they're talking to ya ?

Ox · Jan 20, 2009

Alrighty then!

LOL!

Who's got a pic of Mavis Davis? LOL!

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Think Snow Eh!
Ox

Metalcutter · Jan 20, 2009

If they don't want to pay with in 30-45 days, get up off your bottom and find new customers. You were looking for that one when they came to you.

Do the best most accurate work on time, and then let the price and terms be yours!

If they want good work then make them toe the mark. There are many average shops. Make yours the exception.

Another thing... Look for customers who are very high-tech and sell mostly technology. They just need the parts to practice their high technology craft. That means the machined parts are really a small part of their product. Maybe they sell 80% tech and 20 % machine parts. This means they are able to have a wider range of part cost which is still ok.

So if your parts cost more but they look good to their customer you may get the job.

Anyhow I've found that to be true here in San Diego.

Regards,

Stan-

spock · Jan 20, 2009

"That statement rings of "Nobody else will either". I find that completely wrong.

Whatever you think it rings of is up to you. My point was, they are "planning" on a volume increase in the future. And they want 4 months credit right now. (Arent they a wonderful bunch!) Simple confidence scheme to get you saying yes to the crap because you dont want them to hear the word "no" escape your lips, they just might take the "planned" volume increase elswhere!

"Someone WILL take that big job on at high risk terms!"

Let them. That someone doesnt have to be JW Machine. Or my shop.

How long do you give your customers to pay you?

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