Payment terms, how lenient should you be?

[mrjonathanbrown]

Hello everyone,

I run a business from home, so as you can guess i'm at the very early stages of my business. I make products at home then I have a sales agency who sells on my behalf amongst other products/brands they represent.

I called a customer today because I hadn't received payment, payment is a week late so I called as a friendly reminder. I would of prefered to give them an email but unfortunately I don't have that.

So basically I'm enquiring about payment and the owner gets a little defensive, and tells me if he/she places an order at the middle of the month she doesn't expect to pay the supplier till the end of the next month. She informed me that if he/she was to pay each supplier 30 days after invoice she'd be writing cheques everyday.. so he/she lets it all build up and pays it all at once.

He/she seemed annoyed at me and said that's how she deals with every supplier, tho I hadn't been informed at all.. no contact.


my invoice stated a payment date.

Is this common?

 

[scribe0101]

I can't say how common attitudes like that are (i.e. I ignore the date and just pay on my timetable), but late/delayed payment is a problem that can sink a business.

If this person is a regular customer, they do pay regularly but on their defined schedule, and you can afford to wait that little bit longer, just amend the due date accordingly when you invoice them.

Obviously an admin headache if all your customers are like this, but if this isn't a big overhead for an important customer you could see it as good customer service.

 

[Pish_Pash]

I've actually just pulled out of offering credit to small/medium sized businesses...I will now only offer credit to large customers (& I don't have any of those now!). IMHO, offering customers credit makes me a financial institution...& I'm most certainly not one of those!!!

I think unless you have scale, then the extra worry & admin of offering credit just isn't worth the hassle. Nope, I have to pay my supplier upfront ...so payment upfront by my customers is how it is for me now.

He/she seemed annoyed at me and said that's how she deals with every supplier, tho I hadn't been informed at all.. no contact.

Is that just messed up? He/she has your money ...you've asked about it & he/she gets annoyed.

 

[Ian J]

So basically I'm enquiring about payment and the owner gets a little defensive, and tells me if he/she places an order at the middle of the month she doesn't expect to pay the supplier till the end of the next month.

That's pretty standard in industry

 

[scribe0101]

I think unless you have scale, then the extra worry & admin of offering credit just isn't worth the hassle. Nope, I have to pay my supplier upfront ...so payment upfront by my customers is how it is for me now.

That's a fair point.

You don't expect to walk out of a supermarket on a Wednesday and leave without paying for your shopping saying "well I pay for everything on a Saturday because it's easier".

Of course, you have to be able to afford to turn customers away who refuse to pay like this.

 

[Ian J]

That's a fair point.

You don't expect to walk out of a supermarket on a Wednesday and leave without paying for your shopping saying "well I pay for everything on a Saturday because it's easier".

It's not a fair point at all as you can't compare commerce with retail shopping

 

[scribe0101]

It's not a fair point at all as you can't compare commerce with retail shopping

Ok poor analogy, but I still respect his decision and am jealous he can afford to stand by it

 

[mrjonathanbrown]

@scribe0101 Yeah I can be flexible at this current time but I would like my customers to return my emails/phone calls If I have left them a message ignoring me just annoys me. I've delivered my part and I have given credit. If I email with a friendly reminder stating an invoice is due id just like a email back saying Yeah thanks, it's on our todo list this week, brilliant for me, and this is a new costumer for me and a long term customer for my sales agency.

The sales agency will email me with orders they have received that day and state who can get credit and who can't based on experience.

I dealt with her response politely, I do believe in good costumer service.

I don't get credit from my suppliers, which is difficult but something I have to deal with and move past with, when I took on the sales agency I knew I would have to give credit, I just didn't expect customers to pay on their own terms.

 

[mrjonathanbrown]

@Pish_Pash while on the phone someone over at my end overheard the whole conversation and this person said to me listen she was annoyed.. I didn't really see it until it was mentioned and yeah it is strange i'm offended. This experience working with independent retail is completely new to me so each day is a learning curve. Still learning the boundaries etc.

 

[scribe0101]

I accept all opinions on this subject equally. I can't afford to be like that, just saying it would be nice if I had the option.

For the purposes of this thread I am Switzerland on the subject, but I am also a big fan of good customer service, and go the extra mile for my clients because I believe I should.

Piece go with you all and your attitude to credit

 

[Gecko001]

I agree with Factoring Specialist in that the firm that the OP is dealing with is doing something which is standard practice. I once queried the same thing with my accountant and he said that those were "good" payment practices, meaning that if I only had to wait until sometime in the month after the 30days, I should be quite happy.

 

[Alan]

In my book, it the terms are 30 days then on day 31 the payment is late and I'm entitled to be annoyed, actually I'm also entitled to extra cash.
Late Payment of Commercial Debts - http://www.legislation.gov.uk/ukpga/1998/20/contents (for a debt less than £1000, the sum of £40 ).

Any customer that was annoyed at me for chasing wouldn't be a customer any more.

My accounting system basically starts sending polite reminders 2 days before and starts sending firmer reminders 7 days and then final reminders 14 days after. I don't get involved, its automated,and I make sure it looks impersonal and automated, after all it is not a personal issue it is a matter of fact.

 

[smallclaimsassistance]

As this is a commercial transaction, do you have a contract, and if so, what does that say about payment terms?

If not, you would be well advised to get one.

Dean

 

[mrjonathanbrown]

@Alan Yeah I agree with what you have said. Prior to me giving my customers 30 days credit I did some research. However, for me personally I have gone into a new industry one i'm not familiar with, I'm still learning the field i'm considered a newbie.

So is this the norm? my sales agency said to me don't expect customers to pay bang on 30 days, which okay fair enough I accept I can give them some leeway.

The customers I deal with i'm not even sure they know the law about late payments and this is just an assumption based on my experience prior to getting a sales agency, before I took on a sales agency I went door to door myself getting sales and it was pro-forma basis.

@smallclaimsassistance Yeah all B2B transactions and no contract written, just goods get ordered through sales agency, I fill them & send away with invoice.

I do have t&cs on my invoices.

I feel dealing with small independent gift shops is a little different, it's more informal.

 

[billmccallum1957]

You need to work with your sales agents to ensure that they are expressly identifying your payment terms when they approach customers, and your initial invoice should have Due Date in large letters on the front.

 

[obscure]

There's legality and there's reality.

Legally, If the payments terms are detailed as 30 days then the invoice is overdue at 31 days and you can start to charge late payment interest.

In reality many businesses will stretch payment as long as they can in order to keep as much money in their bank account instead of in yours. They will use excuses like "I pay all my invoices together at the end of the month" but that is just an excuse. They could easily have written you a post dated cheque at the end of the previous month along with all the others.

 

[Mark T Jones]

Based on the information provided I would take a big step back and evaluate your business process as - like many a (potentially) good business before you you could easily fall into the trap of allowing sales focus to kill your business

It would appear that your agents are effectively dictating credit terms. At a guess, those agents are presumably remunerated o. Orders not on cash receipt?

Firstly, put together a detailed cashow to assess the impact to you of increasing orders whilst paying suppliers in advance and offering credit

Them work on a strong credit control process, which starts before you actually offer credit terms. Consider alternatives such as cod discounts or incentives

An effective front end policy is far better than collections!

Realistic planning means that you should allow for late payment and bad debt. Good implementation should keep this to an absolute minimum.

 

[Nigel Ingham]

Good luck!

 

[mrjonathanbrown]

@Mark T Jones

I've only had two customers pay late, one did have a valid reason however she never emailed or phoned me explaining why... I had to hear it through my sales agent.

My sales agent don't just rep me but other brands and they give me advice on their own experience, for me it is a learning curve to understand how it all works.

Yeah my agents get a commission so they don't get paid till I get paid.

I was told my my agents & several customers I had before I went with this particular agency it is industry standard to give 30 days credit.


Thank you, I do offer a discount on early payments.

I agree, the majority of my customers have paid on time some even early.

(all my customers through through the sales agency are new customers, so first time buyers from me.)

I tend to email my customers a few days before the due date to gently remind them of the bill..

 

[smo]

That's pretty standard in industry

Actually its not, it used to be common practice and that was stamped out in large businesses with new rules dictating how quickly payments should be made. For this to still be happening is taking the piss, if you are late on a bank loan, credit card etc. do they just say "thats ok, pay us all in one go later next month when you find time between coffees and casual chats in the office" - NO, they want it when its due or you pay charges and interest.

It's not a fair point at all as you can't compare commerce with retail shopping

Yes you can, what do you think people/businesses are doing - they are buying goods or services. Its no different but all of a sudden you take it out of a "shop" situation and people feel the right to extend your terms to meet their needs or schedules.

Personally I'm utterly sick of it, I used to give 14 days to most customers, however when many started taking 30-45 days and some upto 90 days to pay I wised up. Now you pay up front unless you are a serious, trusted regular customer. I'm not a bank, if you want credit go to one of them, not me!

 

[Pish_Pash]

Now you pay up front unless you are a serious, trusted regular customer. I'm not a bank, if you want credit go to one of them, not me!

Exactly & such a stance is exactly what I said earlier...

IMHO, offering customers credit makes me a financial institution...& I'm most certainly not one of those!!!.

Sure, credit is how the whole world turns, but look at the mess the whole world is in because of credit!

 

[mrjonathanbrown]

Can I ask how do I deal with situations like this (late payments)

I don't want to add interest to the credit, I feel this would soil the relationship and as well I see this as damaging my relationship with my sales agents.

The sales agency has built up a reputation and a relationship with the independent retailers, they don't just represent my brand as I have said previously, so they could I guess just walk away from me if I am being a nuance to retailers with the emailing/calling enquiring about payment. They feel like it's on their terms which is not the case but I don't have the strong arm.

What I am trying to say is if I pee of a shop, I don't want the shop to blame the agent and potentially soil there relationship and this causes upset between me and the agency.

but as we all know, we need to get paid on time or very close to on time, if you are going to be late email/call to explain.

Like it has been said we have our own bills we can not hide from.

 

[Ian J]

Can I ask how do I deal with situations like this (late payments)

I don't want to add interest to the credit, I feel this would soil the relationship and as well I see this as damaging my relationship with my sales agents.

The sales agency has built up a reputation and a relationship with the independent retailers, they don't just represent my brand as I have said previously, so they could I guess just walk away from me if I am being a nuance to retailers with the emailing/calling enquiring about payment. They feel like it's on their terms which is not the case but I don't have the strong arm.

.

You have a choice to make and that is either to trust the word of the sales agent who knows both the marketplace and your customers or you can trust anonymous people on the internet some of whom it appears have no idea what goes on in the real world of business.

 

[Chris Ashdown]

Get real, most companies make payments either once a week or once a month and even though it hurts payment 30 days really means payment 30 days from end of month. that's the real world and what you need to accept if you offer credit terms

Yes you can nag them to your hearts content until the MD says why are we bothered by this small company always on the phone

 

[smo]

Get real, most companies make payments either once a week or once a month and even though it hurts payment 30 days really means payment 30 days from end of month. that's the real world and what you need to accept if you offer credit terms

Yes you can nag them to your hearts content until the MD says why are we bothered by this small company always on the phone

Complete bullshit.

If you are offering credit then it is on your terms, NOT theirs.

It is attitudes like yours that mean that this archaic "system" continues to be accepted by many.

 

[Chris Ashdown]

Very naive answer or you are only dealing with very small companies

 

[smo]

Very naive answer or you are only dealing with very small companies

Not in the slightest. I have big companies (800+ staff) who pay on 30 day terms, everyone else pays up front.

Also looking at your accounts I'm not sure you are overly qualified to recommend your way as "the norm" or to advise others to work in this way, your t&c's state something different to your claims above and your accounts show a massive amount of money outstanding despite using a factoring company - doesn't look like it works very well for you!

 

[mrjonathanbrown]

two devised opinions on this thread.

If you are offering credit then it is on your terms, NOT theirs.

Yes I agree strongly with this statement, I don't see the point in giving terms if you aren't going to accept them...

Get real, most companies make payments either once a week or once a month and even though it hurts payment 30 days really means payment 30 days from end of month.

If this is the norm I can't change that, I know that. I just wanted to understand as a newbie if am I being taken advantage of.

 

[Chris Ashdown]

Not in the slightest. I have big companies (800+ staff) who pay on 30 day terms, everyone else pays up front.

Also looking at your accounts I'm not sure you are overly qualified to recommend your way as "the norm" or to advise others to work in this way, your t&c's state something different to your claims above and your accounts show a massive amount of money outstanding despite using a factoring company - doesn't look like it works very well for you!

Most of my customers pay up front for their goods

We only started factoring two months ago to help solve this problem as it was taking up to much time and effort chasing up outstanding accounts

At the grand old age of 69 i have had quite a long experience of handling large accounts around the UK and most work to 30 days after the end of month and some try to push it much more.

I agree it is wrong and 30 days should mean 30 days but pressing your customers in large companies for payments outside the way they are set up does piss them off and move .

Every small company has this problem to accept the larger companies terms or just keep to your own, neither is right or wrong in all cases its up to you to decide, Thankfully most are now issuing cards to their management and doing away with small (to them) invoices

 

[mrjonathanbrown]

I agree it is wrong and 30 days should mean 30 days but pressing your customers in large companies for payments outside the way they are set up does piss them off and move .

I'm dealing with small independent gift shops, not large companies would you still expect the same attitude?

 

[deniser]

That's pretty standard in industry

Not in my industry.
Most of my suppliers are 30 days, a few are 60 days and a handful are 30 days plus the rest of the month or up to a specific payment date in the month which isn't always the end but can be the middle of the month. And some just divide the total into three monthly instalments.
If we don't pay on time - whatever the invoice says - they either start hassling you with statements and phone calls and overdue notices or they just add interest from day 31 which then accumulates.
But we are in an industry which is notorious for businesses failing and many of our suppliers are now asking most of their retailers (not us because we pay on time) for cash upfront before delivery.
Can you ask for payment in advance but take credit card payments as that then gives the buyer time to pay but you have the security of knowing you have your money before dispatching goods?

 

[Chris Ashdown]

All our card payment are on Pre-Authorised so the money is guaranteed for either 6 or 7 days after that its pot luck if the money is available

We only actually take the money the same day as we dispatch which we think is fair as sometimes embroidery onto their uniforms can be very busy and take up to a week or a bit more

 

[Ian J]

I'm dealing with small independent gift shops, not large companies would you still expect the same attitude?

It depends on what you are selling and how desperate the shop is to stock your product as most independent gift shops will buy from someone who will allow them standard credit terms rather than insist on payment up front.

Your agent is advising you correctly as they know the market

 

[Ian J]

Not in the slightest. I have big companies (800+ staff) who pay on 30 day terms, everyone else pays up front.

Also looking at your accounts I'm not sure you are overly qualified to recommend your way as "the norm" or to advise others to work in this way, your t&c's state something different to your claims above and your accounts show a massive amount of money outstanding despite using a factoring company - doesn't look like it works very well for you!

As you're into ferreting about to try and discredit the poster may I point out that a year ago you were asking for advice to put your company down as it was insolvent here and then you subsequently asked about the preparation and submission of accounts for a micro company here

Now please accept that others may have different experiences in the business world and that other opinions apart from your own may be valid

 

[S Goodman]

Interesting thread which proves what most people in retail know, there is no standard payment terms. When we had shops terms varied from 28 days to three months, new accounts with "known" suppliers would be proforma for at least the first couple of orders.

What you have to remember when supplying retailers is they are your very life blood, without them you have no business. So knock all the "hard business talk" on the head and treat them as the vital customers they are and nurture your relationship with them rather than alienating them. And if that means waiting a couple of weeks more than you'd like for payment then so be it.

 

[Mark T Jones]

To churn up the old cliche - turnover is vanity, profit is sanity, cashflow is reality.

Before making decisions on how to offer/handle credit, you really must take a good, close look at your own cashflow as your business grows and how you late payments and (inevitable) bad debt will affect you.

It is true that many clients will only deal on 30 day terms (and if you crack the biggies, that will become 90 days), so it is realistic to assume that these terms will form part of your offering - always subject to satisfactory checks.

Does your contract include ROT? Do you take PGs against weaker credits?

Your agents can have valuable input, but ultimately they are led by orders - the downside to them of late or non payment is relatively tiny compared to yours.

You will probably need to accept that 30 days means end of the month, or twice monthly to many - but you need to be damned certain that you are high on the payment pecking order - no serious business owner will disrespect you for having a good credit control policy - those who don't like it are the ones most likely to knock you.

 

[deniser]

no serious business owner will disrespect you for having a good credit control policy - those who don't like it are the ones most likely to knock you.

Now that is very true.

 

[Vectis]

Stick to your guns and to your terms. You've every right to chase up payment once the due date is past. If someone is getting annoyed or upset because you are, quite rightly, chasing payment I would suggest this may be because that person is being chased by a number of other companies for payment i.e. you are just one of many who are owed money. This alone would make me cautious about dealing with them in the future or possibly changing my terms to money up front.

Now, if they had simply explained rationally that they only do their payments once a month and didn't get defensive about it, I would be more likely to let it go and see exactly when the payment arrived. But the defensive/angry attitude would set alarm bells ringing for me.

Remember, you set the terms not your customer.

 

[mrjonathanbrown]

It depends on what you are selling and how desperate the shop is to stock your product as most independent gift shops will buy from someone who will allow them standard credit terms rather than insist on payment up front.

Your agent is advising you correctly as they know the market

This is a new business venture for me, so all my customers are first time buyers.
my agency prior to getting involved with me said I need to offer 30days from date of invoice I understood that as if I invoice someone on the the 10th I'd roughly expect to be paid the following month on the 10th or near abouts.

What you have to remember when supplying retailers is they are your very life blood, without them you have no business. So knock all the "hard business talk" on the head and treat them as the vital customers they are and nurture your relationship with them rather than alienating them. And if that means waiting a couple of weeks more than you'd like for payment then so be it.

Spot on, that is why it is difficult for me.... you have to find the right balance but I can't help but think I can't exactly ask my creditors to wait till I get paid, retailers have to understand I have bills to pay too.

and we are not talking big retailers, we are talking about small independent gift shops.

Does your contract include ROT? Do you take PGs against weaker credits?

No clue what that stuff is sorry, I'm a start up business. I'll do some research.

Your agents can have valuable input, but ultimately they are led by orders - the downside to them of late or non payment is relatively tiny compared to yours.

You will probably need to accept that 30 days means end of the month, or twice monthly to many - but you need to be damned certain that you are high on the payment pecking order - no serious business owner will disrespect you for having a good credit control policy - those who don't like it are the ones most likely to knock you.[/QUOTE]

Good point, thanks.

 

[Chris Ashdown]

How much time did you put into your cashflow calculations in the business plan and did you vary the terms to see how your cashflow looked withe a number of payment timescales

Nothing stopping you taking card payments from the new customers for the first few months, something your sales rep can do with the order, just phone it through to you with the order and card details for you to enter as holder not present.

Lots of suppliers are very tight on payment as they have something you need where as buyers once they have the goods adopt a different attitude and whilst their buyers may be nice and friendly the accounts departments are next door to the MD and control who and when suppliers get paid, in the end of the day its down to your judgement and what your cashflow looks like

Sometimes its better not to take a order than die from cashflow two months later