Late penalty

Anybody have a customer try to add a late fee to a quote? I have been cutting parts for these guys for about 5 years without being late, now I get this BS. They say it is not me, just a new company policy to require all vendors to accept a late penalty. I said I would accept the penalty if there is an equivalent early bonus. What say all?

I would say it's time to sit down and really evaluate whether you need them as a customer. That's what I recommend, not what I would do. I would probably fly off the handle and tell them to fuck off.

The question I have is, do they pay on time? If they do, and you like the work, carry on. If they don't, you introduce and enforce a late fee penalty.

Win...

Milland said:

The question I have is, do they pay on time? If they do, and you like the work, carry on. If they don't, you introduce and enforce a late fee penalty.

Win...

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They were late a few times, been COD for a couple years now. The first time they were supposed to have a a check on delivery it got a little ugly when I left with the parts. The owner called a bit steamed, he cut a check and I delivered the parts. He plays ball now.

The contract should also include a caveat that any changes in the prints, materials, and numbers to be delivered would void any late penalties. I would also include circumstances beyond your control such as availability and shipping times for tooling and materials.

I recently ordered a couple tools from a local vendor. When ordering I was told they would be in my hands within 4 days. A couple days later I got a notice that the shipment was delayed and would now take 10 days to deliver. No big problem as I had ordered the tooling for a future job. However if I had been on a time constrained contract it would have been tough to make the deadline.

I am not the Sears catalog. This is a build-to-order world, and things can go wrong. I would not accept a PO that included a late penalty as a matter of "company policy".

I might negotiate a deal that had a carrot and stick, but it would be a one-off.

When I confirm an order, I am confirming everything on the PO, including the ship date. That means I am confident I can make the date. If something happens like a machine goes down, I let the customer know right away. But I can't control everything, and I sure can't control the schedule of the anodizers, so I won't guarantee their performance.

It's bad enough that we have to quote firm fixed prices- the local car repair shop sure as hell isn't expected to work on those terms.

When was the last time you went to a customer and said "I missed the estimate, it took longer than I expected" and they said "no problem"? The really good customers will work with you, but most people will just say tough luck.

The only way to absolutely guarantee a delivery date is to have the parts already finished. If they wand to penalize you for late delivery, they should give you a blanket PO so you can inventory their parts.

How much is the penalty? Just add it into the quote and carry on.

We have a few customers that have late penalties built into their MSA's (Master Services Agreement) that all P.O.s that we receive are subject to -(on edit - these are referred to as liquidated damages). So far none of them have exercised the penalties even when we have been substantially late on a project (which in the one case where we were late was a result of failure to validate process details by our customer).

Generally, late fees are 2% per day up to 25 days (that is 50% of contract value if you are not quick with math). These are generally on projects well into 6 or just over 7 figures and it is just part of doing business with large customers.

moonlight machine said:

They were late a few times, been COD for a couple years now. The first time they were supposed to have a a check on delivery it got a little ugly when I left with the parts. The owner called a bit steamed, he cut a check and I delivered the parts. He plays ball now.

Click to expand...

IMO that says it all, keep on keeping them on a short leash, and if they don't like it tell them you're not the only machine shop in town.

All the comments are right on!

Negotiations that you feel are fair TO YOU are what you and your customer want. They need you, just like you need them.

Good will, and fair pricing are the key to a happy relationship. Don't give anything for nothing. That is not good business.

Accept the late fee, and give a discount for payment with in 10 days, let 'em feel good. But charge interest on unpaid balances after 30 days.

Quote price accordingly ;-)

Sure...it's very common in heavy industry. But, as I understand it, in the USA late penalties are illegal. Hence, we have what is called 'liquidated damages'. This is similar but the legalese is different and the key difference is that LD's are allowed to be levied ONLY when the buyer can show the late delivery substantially created a loss on the part of the buyer.

For example, if you are late on an item that the seller was using for a project that they were also late on for other reasons, they can't ding you.

But the basic idea is that in the US you cannot penalize simply based on late delivery just because it's late. The exception to that are 'time is of the essence' contracts but those are special contracts and are not likely to be what you are involved with.

A smart seller will accept LD's, if he has to, but will impose caps on both the total amount and the percentage per week. For example, .25% per week capped at a max of 5% of the order value. And a really smart seller will (hopefully) be able to add 5% to their price so if they lose it all, who cares?

What do I think.

I think they have their own business and can do things any way they want. But they have to accept the consequences of their policies.

AND, you have your own business and YOU can do things YOUR way. Ditto on the consequences. I would suggest that, at the very least, that you could add some additional amount to your overall prices to cover any times when you may be late on an individual order. You could hide it or even list it as a cost on the quote so they know they are the ones paying that penalty.

This is a negotiation. They want this new provision and you do not want it. Have you sat down and talked to them. I say that you should do so. Schedule a meeting. If it is at their place, bring the donuts. They can provide the coffee. In other words, start out in a friendly manner.

But be prepared for that meeting. Explain to them that you also must cover your costs of doing business. Explain that your present policy is to provide the best price that you can under existing terms and that if those terms must change, then your prices must also change. Simple economics.

Have some ways in mind how you could recuperate that loss in income if they insist on this provision:

Higher prices on every quote.

A similar bonus for faster delivery.

Cost of insurance against losses like this.

Other penalties that make sense.

Charge for your administrative time on every job.

Etc.

Learn from our President and NEGOTIATE! They are beating on you. Beat back on them. You can hit them with any or all of the above. NEGOTIATION! It's a game and if you are in business you need to learn how to play it.

PS: You need to keep track of the time you dedicate to this AND get that money back too. Add it in to that company's quotes or even spread it out over all the quotes that you provide.

PS2: Sounds to me like the boss/s/owner's son/daughter graduated from business school and is now working there. If so you are up against an employee that has real good job security but limited experience. Trying out their "book learning" so, good luck.

Liquidated damages, yup done several jobs with LD's. Just be sure to include the maximum interest and penalties allowable by law for late payment. Don't forget to include storage fees if they don't pick it up on time. Two can play at that game. In all realality the work I did with LD's had them for a good reason and paid accordingly.

as an example if you deal with a reman engine co and they have a warranty. you can get a longer warranty but the engine now costs more.

pretty simple to me. if i am under the gun with a deadline penalty then the cost goes up accordingly and can very easily be stated up front.

i will take this risk but i have to insure myself.

Increase your price what ever the fine is for being late....Phil

It's their business and they can operate it how they wish...within the confines of the law.

Here's the bottom line....it's best for both parties (buyer and seller) to be men. There is the general precept that doing business is good for both parties and that both parties are engaged in such willingly and to a common goal.

What that means is LD's and the like come into play only as a last recourse. It's far better to work things out 'man to man' than to get the Terms and Conditions involved.

In your particular case, I'd simply tell them you question the legality of late penalties, and you don't accept them.....if you can force their hand. My guess is they are more bluster than anything and will back down. If you can't get that to happen, propose LD's (not penalties) which are written by you and have very little teeth to them.

But really....if these customers are already on cash and carry basis they hardly are in a position to get fussy on purchasing terms.

Its quite common on critical startup dates, we have had it many times on jobs just made sure we met the date.
Its up to you how you deal with it.
Do you need the work ? Are they a good customer ? Is it that hard to meet dates ?
I know right now up here many shops are hurting big time and would take the work.

Some customers over the years have earned a "PITA" charge, in this case I would make it about double the late fee and continue on as you were.

See post "OT: offshore crane collapse" for one thing that can go wrong, Covid 19 for another. Any contract with Liquidated Damages also needs a force majeure clause.

Then you have to add enough to cover the lawyer fees for contract review.

My late dad that ran the shop before I did use to say " If you don't want to work for the jerk just raise the price until you are glad to see him" It has worked for me for 40 years...Phil