Why are we all not sticking together?

OK, so here is Thursday's rant:

We do contract work and also have a couple of our own products.

On the contract side, the relationships are going by the waste side. What I mean is, our customers are very demanding (price, quality, delivery) and that is cool because while we are not the cheapest, we certainly provide a fair price, excellent quality and 100% on-time delivery.

Now, I'm sure you guys deal with the same: Customer's that want to run your business - quality audits, constantly checking delivery status, report cards, etc. I'm actually reasonably OK with this stuff, but here is the part that get's me upset:

Why do I need to chase down almost every payment? We never agree to terms other than NET30. But, it might as well be "NET Pay us whenever you feel like it".

Don't get me wrong, we don't have any dead beat customers. None go beyond 60. But, what I know for sure is, they have the cash. Not paying on-time is a calculated tactic to use suppliers as a interest free line of credit.

We are a strong company and we pay most invoices in 30 days or less. A few times per year we might hit 45 due to customers or building inventory. So, we are not hurting - it's a principal issue. What ever happen to a win-win relationship? If the customer is getting service from us and we are doing our part, is it too much to ask for them to do the same?

Any of you guys try making a credit card payment late? Guess what, late fee and interest. Do that with our customers and we will be replaced. If we don't agree to turn a blind eye on late payments, we will be branded a bad vendor. Really?

part 2 of the rant:

NRE - Non Recurring engineering. On the contract side, we do production work. Would you other guys out there please stop giving away NRE? How do you guys expect to grow if you build fixtures, write CNC and CMM programs, do work instructions, create special packaging, etc, etc and do this all for free?

No other industry in the world is so disconnected than ours. Ever take notice to the shops in your area? Most are in crappy buildings, older equipment, etc. No all, but most. yet, the customer's lobby is bigger and nicer than any shop...

(now, we have a very nice, new building - but I'd like to keep it that way)

If we all start sticking together, charging NRE and expecting on-time payments - guess what? We will do much better for the work and efforts we put forth.

/rant over/

if a company is slow to pay they can always declare chapter 11 bankruptcy and get out of paying debts. they also use it to change pension benefits and to cancel stock and then they reissue stock in a "new" company
.
if i were you i would ask for a corporate credit card number from your customers and process the transaction as soon as possible. if a company wants 30 or more days of credit it should be between them and their credit card company. of course a certain % is discounted and goes to credit card company. technically you loose a few % of dollars for getting paid faster.

NRE is included in the quotes. We don't create separate line-items in the quote for it. We account for it, especially programming. We're in the middle of a job right now, where we included 80-some hours programming time. It's lumped under the 'labor hours' though.

Special fixturing is part of the game. The customer doesn't see it separated out. We may lump in extra material costs and labor time, but it's lumped in. That's the "cost of doing business" as a job shop. No one "gives it away". It just isn't billed separately.

The only time we segregate the costs of engineering or fixturing is if the customer orders it, or asks for deliverables from it. Then it's separated out to explain the separate cost/line-item.

JNieman said:

NRE is included in the quotes. We don't create separate line-items in the quote for it. We account for it, especially programming. We're in the middle of a job right now, where we included 80-some hours programming time. It's lumped under the 'labor hours' though.

Special fixturing is part of the game. The customer doesn't see it separated out. We may lump in extra material costs and labor time, but it's lumped in. That's the "cost of doing business" as a job shop. No one "gives it away". It just isn't billed separately.

The only time we segregate the costs of engineering or fixturing is if the customer orders it, or asks for deliverables from it. Then it's separated out to explain the separate cost/line-item.

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We all do different work. We often have $20,000 - $30,000 in NRE. We design and build dedicated CNC fixtures as well as CMM fixtures. We write work instructions for every operation thru the shop. This ensures quality and consistency. We write instructions for even packaging. We do recurring work and the customer always wants the NRE broken out but we still have competitors giving it away for free. Those are the companies with crap buildings, old machines, the ones that never reinvest. Our customers say they don't even want to deal with those vendors (until they get the price)

Dave Rocks said:

We all do different work. We often have $20,000 - $30,000 in NRE. We design and build dedicated CNC fixtures as well as CMM fixtures. We write work instructions for every operation thru the shop. This ensures quality and consistency. We write instructions for even packaging. We do recurring work and the customer always wants the NRE broken out but we still have competitors giving it away for free. Those are the companies with crap buildings, old machines, the ones that never reinvest. Our customers say they don't even want to deal with those vendors (until they get the price)

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Then I am surprised NRE isn't broken out at that scale. We are at the point where we're taking on jobs anywhere from 50 hours to 400 hours labor. From little piece parts to elaborate fixtures, assembly jigs, bond jigs, and other aerospace tooling. The larger ones take significant NRE at times, but our customer(s) still just want to know 2 things "labor" and "material" in the quotes.

I guess it's all about customer demands.

I still don't see what the method of charging NRE has to do with the quality of work environment and facilities.

JNieman said:

Then I am surprised NRE isn't broken out at that scale. We are at the point where we're taking on jobs anywhere from 50 hours to 400 hours labor. From little piece parts to elaborate fixtures, assembly jigs, bond jigs, and other aerospace tooling. The larger ones take significant NRE at times, but our customer(s) still just want to know 2 things "labor" and "material" in the quotes.

I guess it's all about customer demands.

I still don't see what the method of charging NRE has to do with the quality of work environment and facilities.

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We are talking recurring production parts here. Yes, the NRE is broken out as a separate line item. What I am saying is, many competitors will do it for free or next to nothing to get the work. I don't care who is doing it, it will cost the shop money to do the NRE but many shops eat it. If you eat it, you work for less per hour and ultimately don't make profit. Without profit, you cannot re-invest.

What profit margin do you think is reasonable in this industry? We shoot for 30% and we rarely hit it.

Dave Rocks said:

Why do I need to chase down almost every payment? We never agree to terms other than NET30. But, it might as well be "NET Pay us whenever you feel like it".

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The person ordering isn't usually the person in charge of payments. Have you tried contacting the person ordering and asking why?

It's happened to me a few times and one email to the person ordering is almost always enough.

Gordon B. Clarke said:

The person ordering isn't usually the person in charge of payments. Have you tried contacting the person ordering and asking why?

It's happened to me a few times and one email to the person ordering is almost always enough.

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Yep, dealing with buyer now. Getting the typical "payments are handled thru HQ - let me see what's going on" Trust me, he knows exactly what's going on. I've been at this a long time. It is so obvious that the customers are now using suppliers as a free credit line. I actually have had new prospects tell me their standard terms are NET60 and then I just walk away.

I worked for a utility for years, they were notoriously known for demanding extended terms...up to 120 days or longer. Yet, try that with your bill and you would get your electricity turned off. Purchasing/accounting would spend more money (in time and resources) trying to extend payment, than just paying on time. What a game, suppliers hated dealing with them.

During that time, I worked with a large manufacturing company that took pride in paying their bills immediately on receipt of invoice....never, ever waited until net 30 days. The suppliers loved them for this and were very loyal to them. This company built a very high quality product; in part from this relationship with their suppliers.

Gordon B. Clarke said:

The person ordering isn't usually the person in charge of payments. Have you tried contacting the person ordering and asking why?

It's happened to me a few times and one email to the person ordering is almost always enough.

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Another part of this equation is even the you are doing the work for "Mega Industries Inc." the job you may be running may be for "super small dept" of "Mega Industries Inc" and your payment needs to be approved by the manager of "super small dept". Alot of these managers are measured in part by how much money they didnt spend last month or last quarter. We all know its kinda like robbing Peter to pay Paul.....but human nature is to put off bad news etc.

Dave Rocks said:

Yep, dealing with buyer now. Getting the typical "payments are handled thru HQ - let me see what's going on" Trust me, he knows exactly what's going on. I've been at this a long time. It is so obvious that the customers are now using suppliers as a free credit line. I actually have had new prospects tell me their standard terms are NET60 and then I just walk away.

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Have you tried adding a "correction factor" to the NET60 guys? Add another 3% in, as long as they're really paying in sixty days you're doing well with that extra money.

I'm really interested if anyone here has gone from straight Net 30 to a discount Net 30 and simply adjusted list price by the discount amount. For instance, if your terms are Net 30 today, what would happen if you went to 2/10 Net 30 and at the same time adjusted your list price and labor by 2% upward? In theory everyone that pays on time would be paying exactly what they were paying before the change. The only people that would be paying more would be those that choose to not take the early payment discount of 2% and pay by 30 days (or later as is the case here). I know a couple places near me that do that, but they're not machine shops, they feel like it's worked well for them. This way the late payers end up paying you more for the trouble but it doesn't show up as a fee or a charge, just a discount they chose to take a pass on.

In regard to those customer audits and surveys: In many cases, there is an annual comparison of the supplier's operation to the other suppliers in that category, so that the individual supplier can see (or be TOLD) how they stack up compared to the supplier population for the category, in all of the characteristics like part quality, delivery, price, etc. I could see great value to suppliers in getting together to rate customers on an annual basis, using the suppliers' own data on things like payment timeframe, unwarranted returns, average delay in getting engineering response to drawing issues, and a variety of other PITA factors that all get rolled into the "Supplier Satisfaction Survey" that I have just invented. ;-)

Having a tool like this circulated among suppliers and then provided to the "errant" customers annually might provide some leverage, but it would require a significant number of suppliers to participate, and need to be sponsored by a formidable-sounding organization. Maybe we could suggest an ISO standard be promulgated to cover Supplier Evaluation of Customer Performance.

I did a few jobs for a well known work-holding firm local to me.
One set of the parts I made for them in a huge rush to make their deadlines, were going in three high-zoot fixtures for FO-MO-CO in Canada.
Of course when they came to me they needed the parts ASAP, 5-days, if they are one day late the PO is null and void.

Yea, well 90days later, after many phone calls, I still had not been paid. The lady in that "department" finally said: "look, we have not been paid by Ford yet".
To which I replied: "I did not manufacture the parts for ford. This PO has your name on it."
About a week later, same thing: "hey Bill, I have these parts I need and I am in a huge rush, bla-bla-bla...."
Me: "sure, I will start as soon as you pay me for the last parts."

I had a purchase order, and a check for the last job that day.
I put the check in the bank. Waited a couple days. Then snail-mailed the PO back to them with a nice letter.

Don't like your arrangements? Find new customers, or quit. Its not going to change.

Did I step on my own foot burning that bridge? Maybe, but nobody walks on me.

As mentioned earlier, try paying your lease payments late and see what happens.

wheelieking71 said:

Don't like your arrangements? Find new customers, or quit. Its not going to change.

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Purpose of the thread - it CAN change if we all start sticking together like other industries do. Go find an attorney willing to work for $50.00 per hour - you won't.

Milland said:

Have you tried adding a "correction factor" to the NET60 guys? Add another 3% in, as long as they're really paying in sixty days you're doing well with that extra money.

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Because I am not a bank, I'm a manufacture. I get what you are saying though.....

El Mustachio said:

discount Net 30

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so then the customer turns it into 2% net 160... and you are so glad to get paid you send flowers....

some places pay well, some don't, the slow payers figure you won't get paid until they are ready..... and if it comes sooner don't spend it all in one place.

We have shiny new (paid for) equipment, and I stopped charging NREs years ago. The customer either likes the price or they don't. I either like their project or I don't. We routinely have internal NRE costs in five and sometimes six figures, but if I can't roll that into a sensible piece price, I don't take the job. So don't generalize.

Then again, we do the actual part engineering in house too, and we keep the rights to the design, so maybe we're too different from you to hang together.

Dave Rocks said:

What profit margin do you think is reasonable in this industry? We shoot for 30% and we rarely hit it.

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30% profit?
Pre-tax or post tax? Maybe you are talking markup not actual profit on the balance sheet.
8-12 after taxes is doing alright in my book.
I've never had a 30% year. Lord knows I'd like to have 1.5 million in extra cash after taxes at year end.

Customers pay when they pay. Talk to the person who cuts checks and you get the rules they work under.
Yes, you are in the banking business, even at net 30. We refactor markups every year by customer to handle the loans we give them.

NRE gets paid for somewhere, somehow.
Some people will simply not accept these charges and the people spitting a po to you can't do poop about it
Many of my customers will not pay this line item.
So you put this into 0.2,1,2,5 years worth of parts and hope the program continues. Sometimes you loose if the product dies, sometimes you win with 10 years of orders.

T'is how the game is played. Saying everyone else is cheating won't help.
You have to play better than your competition.
Bob

CarbideBob said:

T'is how the game is played. Saying everyone else is cheating won't help.
You have to play better than your competition.
Bob

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Exactly, it is a game. A dirty, ruthless, cut-throat, GAME.

I tell you what Dave, I will start adding NRE itemization's, really start pushing for 30day payments, and stand right by your side buddy, IF you share all your contacts with me. We will make a great team!

See what I am saying. I don't charge NRE's because the customers don't want anything to do with them.
I need work. I can quote like a lawer until I'm anorexic. It does me no good if I never land a PO.

You don't share your favorite fishing hole with the whole world do you?