When does NET30 start?

[CarbideBob]

A question.
So a slow paying place is out over 60 and maybe 90 or worse.
You do get paid .... but you get paid late always.
They have 1/2 million a year in orders even when subtracting material and other costs involved.
Do you want this customer even knowing that you are sort of the banker loaning and floating money for three months?
Let us assume you do the end of 2 million a year value added in work.
That is up to $500k in the float that you have to deal with as a worse deal. Serious pocket change and a hill to climb for sure.
Yet if you do production work once you climb that hill the money just rolls in day after day.

When GM, Ford and others went to the "new" payment plans I was like OH-SHIT. At this time I am shipping 500k per month end and 300K+ in value added on my end.
That is 30 more days of waiting for a check. I did not see that coming. Hurt like hell and I'm going to need a bigger credit line from the bank.
But, once over the hump all is back to normal.
I just have to work with the A/R and A/P out there but for sure I have to pay my people, the tax man and suppliers timely.

If a supplier needs COD I do not understand. That is not the way this works if you want a long term relationship.
I do get the credit card (with a fee) or other on startup orders until an account is established.

So maybe depends on the customer and trust that I will get paid.
I pay money to float money. Someone in the line has to cover that costs of business. If they pay this in price tag all is fine.
Now we get to pricing. Do you factor this in?
If you deal with commodity mangers in between now there is a "discount" for quicker payments where they make money.
This one quite confusing. Has to do with the supply house contract with the end user.

 

[Pete Deal]

My assumption has always been that what’s reasonable is that parts are received and invoice received. Saying just invoice has been received means nothing. Maybe the supplier sends the invoice right when they get the quote. I generally ship the parts and watch tracking then email the invoice once the parts are received.

Also, having been on the other side of this in a large company i can tell you that the quote, packing slip and invoice all need to be very clear and all need to match. This can majorly slow things down otherwise.

 

[CarbideBob]

This so simple .
Understand the customer and what will happen.
There is no whining or crying allowed. (oh my, life is hard, I did not know)
Get over it and put your big boots on.
Interesting to see starting shops and expectations.

 

[Strostkovy]

A customer will never tell you they might go under before 30/60/90 days is up.
And one of the first things a failing business does to try and stay afloat is pay suppliers as late as possible.

 

[William Payne]

Dumb question. I am asking this from the customer side. I have always paid invoices on time when I hire someone to do something for me. I make an effort to check and confirm when invoices need to be paid based on the terms stated on said invoice.

What has happened to me a few times and is really annoying is I will receive an invoice and check the payment date. I will see that the date is such and such of the next month. Then a week later I get an email requesting payment even though their own terms of payment state I still have 3 weeks. I have never been late and when I can, I try to pay as soon as I receive the invoice. But to hassle me while still within the terms annoying.

 

[GreyhawkUSA30340]

In a previous business we had some vendors who offered -10% in 10 days, net 30 terms, and you can be sure that we "always" paid within 10 days.

 

[mottrhed]

First time customers have to pay before it leaves my building on the first order. Second order if they ask for terms I run their credit and make a decision, if they dont ask Ill continue to let them pay up front. All cc payments pay a 3% fee.

Once given terms it is 1% 10 net 30. (^10% seems crazy to me) Certainly there are the big boys that pay in 90 or 120, it does not matter what your quote says, they pay on their schedule, its up to you whether you want to work under those terms or not. I dont mind as long as I know going in, and this is a minority in the overall business cash flow.

I would love to charge a % fee every day its late, but it a headache to manage and its actually hard for the customer to pay when the po and the new charge doesnt match. Its just kind of a scare tactic to me, maybe it works but Ive never invested the energy to try.

This system has worked very well for me, only one very small write off last year and very few significantly late payers.

 

[GreyhawkUSA30340]

(^10% seems crazy to me)

I know, right?

To be fair these were "retail" businesses, so by number most customers were probably paying COD; most of the credit accounts offering these terms were likely regular repeat "business" customers. One of the vendors was a local hardware store, the other a regional building supply store (lumber yard).

 

[ManualEd]

In a previous business we had some vendors who offered -10% in 10 days, net 30 terms, and you can be sure that we "always" paid within 10 days.

You're not getting a 10% net 10 discount, everyone else is getting a 10% net 30 upcharge.

 

[boosted]

In a previous business we had some vendors who offered -10% in 10 days, net 30 terms, and you can be sure that we "always" paid within 10 days.

The problem is the big customers are gonna pay at NET30, and then take the 10% discount anyways. Good luck beating that extra payment out of them, because they have all the leverage, and the offsite AP team is never going to pickup the phone.

 

[broke]

If you aren't dealing with cash flow issues I wouldn't make a stink. If you have any reason to think the customer might be having money trouble, maybe hold a delivery until they get caught up.

How often are you delivering and invoicing?

 

[triumph406]

In a previous business we had some vendors who offered -10% in 10 days, net 30 terms, and you can be sure that we "always" paid within 10 days.

lol, I've never heard of 10%/10, I offer 2%/10

Offering a 10% discount? Sound like somebody who didn't know what their doing screwed up.

On the other hand if you can get customers to pay in 10 days who would otherwise pay in 90? Why not?

 

[triumph406]

A customer will never tell you they might go under before 30/60/90 days is up.
And one of the first things a failing business does to try and stay afloat is pay suppliers as late as possible.

Had that happen to me, shipped a lot of stuff to a customer over a 60 day period, they were always a little slow in paying.

Then reeeeeeally slow, as in not at all.

So had an inside source. They weren't paying vendors and barely hanging on, owed xometry $250k at the same time.

Kept in contact with main customer, very civil etc etc.

6 months in he said they had to do a demo for NavAir (US Navy) If that demo was successful it would bring in some VC money. BUT, they needed parts made by me. Maybe 40 hours worth. If I made the parts and delivered on time I would be at the head of the line to get paid. If I didn't, somebody else will and I'd have to take my chances.
I made the parts, they got their VC funding and I got paid.

 

[Ries]

It seems like this is a situation where the size of your business, and the size of the customer, determines what you can demand.
As Bob describes, if you want to do hundreds of thousands to millions a year, dealing with companies like Ford and GM, you go along with whatever their policy is. You have zero leverage.
On the other hand, if you are a small job shop with a varied customer base doing invoices that are often between $500 and a few thousand, sure, you can refuse customers who dont pay promptly.
But in some industries, the big dogs call the shots.
In the 90s, I was making a product line that was largely forged and fabricated, with just a bit of machining, and wholesaling it to retailers. Very different from Job Shop work.
And the big buyers in that field, for me, were Department Stores.
Who often paid net 180, and who also often sent back partial orders for "credit".
I refused to even talk to most of em, at my booth at trade shows.
The only two I would sell to were Nordstroms, and Neiman Marcus. Both were a bit more like net 60, but they were the biggest customers, with the best reputations, and they didnt send merchandise back like Macys or other big stores would.
I bit the bullet, and sold to them because the order sizes were worth it, and they did always pay, just not fast.
And the big dogs drew the smaller customers along- if you could sell to them, you would sell more to smaller stores.
But I had no real choice in the matter except to just say no.
You either accepted their terms, or you didnt sell.
A lot of big companies operate this way. Because they can.

 

[GreyhawkUSA30340]

You're not getting a 10% net 10 discount, everyone else is getting a 10% net 30 upcharge.

Exactly (as are the COD customers)

 

[Strostkovy]

You're not getting a 10% net 10 discount, everyone else is getting a 10% net 30 upcharge.

How do you even get this to work though? If you have that 10% off on the invoice they're going to pay that 10% reduced amount regardless of how long that invoice sat. Do you then try to collect the remaining 10%?

 

[ManualEd]

How do you even get this to work though? If you have that 10% off on the invoice they're going to pay that 10% reduced amount regardless of how long that invoice sat. Do you then try to collect the remaining 10%?

It's a conditional discount.
Invoice is $10.
$1 discount if paid within 10 days, otherwise its the full $10.
If they try to pay $9 after the 10 days, it just becomes an unpaid balance on their account.

 

[hvnlymachining]

One more thing to consider, I have one very large corp that I do a fair bit of work for. They have me on net 10 just because the foreman pulled some strings for me. But, they also don't make any payments one month out of each quarter for internal auditing. They've also been three months behind because of paperwork mistakes between the offices on the East Coast and the onsite bosses out here. One phone call with a friendly secretary did yield quick payment after resending the invoices.

Other companies I work for do check writing every Friday but invoice has to be in by Tuesday for approval so often it's closer to two weeks, net 30 for others but usually only after part delivered.

As others have said, every company has it's own system and version of payment processing, find a person internally that you can discuss your situation with and be watchful for warning signs that show trouble.

In the end, most big businesses will require some sort of credit at any shop they do business with.

 

[kb0thn]

6 months in he said they had to do a demo for NavAir (US Navy) If that demo was successful it would bring in some VC money. BUT, they needed parts made by me. Maybe 40 hours worth. If I made the parts and delivered on time I would be at the head of the line to get paid. If I didn't, somebody else will and I'd have to take my chances.
I made the parts, they got their VC funding and I got paid.

This is super risky to do. If they go bankrupt, the bankruptcy court will take the money back from you. They will say it was preferential treatment and that the money should have gone to creditors with better claims. The court will literally take the money right from your bank account. Years after the fact.

 

[triumph406]

This is super risky to do. If they go bankrupt, the bankruptcy court will take the money back from you. They will say it was preferential treatment and that the money should have gone to creditors with better claims. The court will literally take the money right from your bank account. Years after the fact.

Sure, but I didn't have much choice.

Also they were getting new funding that was likely going to last 6 months, more then sufficient time to put plenty of space between me and the reciever should it go belly up.