Dear Aunty B,
Two clients in the last week have pressured me to extend my payment terms. One wants to pay quarterly instead of monthly. Another wants to pay on 45 days instead of 30. They are big companies and I am afraid of losing them as clients if I don’t agree. But it would cause great strain on my cashflow, particularly if more companies do it.
What should I do?
This is nothing more than big business bullying. Big companies have far more resources than you to pay bills on a regular basis and on time. So make them.
Is the deal really likely to fall over because of this? See if you can trace where this decision is coming from. It is probably some maverick in accounts trying to make his or her mark and has nothing to do with the deal makers with which you negotiate.
Point out the terms of payment on your contract (they do say seven days… don’t they) and that this is standard practice (it is in Korea and Japan.)
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Remember Leon that cash management is absolutely crucial to your business. I know so many entrepreneurs who run great, profitable businesses but then spend their lives in a state of nervous stress over cash! Ridiculous.
Cash management is a core business skill. You should set your business up with this as a central tenant. This is one situation where you should call in a consultant if your accountant has no good ideas. Restructure so that bills are paid weekly or monthly.
And remember the great American cliché, CIF is greater than COP (cash in first is better than cash out of pocket.)
How to chase overdue payments: The excuses
1: The computers are not working; the server is down; we have changed over computer systems… These could all well be true. Ask how serious the problem is. Point out that all your other clients have manual payment methods in place.
2: We never got the invoice. That’s an easy one: just email another one, along with a duplicate of the original. Remind the debtor that you always issue invoices on time and ask them to contact you if any are missing in the future.
3: The person who signs the cheques is away. Most companies have two people who sign the cheques. Ask them to authorise the bank to pay the cheque with just one signature. If this is just a diversion tactic, try getting under their guard: ring early in the morning or late at night, or through a different department, and ask to be transferred.
4: Our practice is to pay bills once a month. So you’ll have to wait. Point out the terms agreed to, email them a copy and call again.
5: You must send original invoices or we don’t pay. Send them a copy of the original, signed and dated.
6: We’re busy dealing with more important things. Set a time to ring back
7: The cheque’s in the mail. Wait a few days and follow up again. This time ask for the cheque number. Confirm it has been sent to the right address and to the right person. This might spring payment, just to stop you asking pesky questions.