Credit Terms

[Aleyandra]

Hello, I would be very grateful for your advice. We have started a new business earlier this year buying household goods from Europe and re-selling them (wholesale) here. So far things have been pretty quiet even though we are working all hours to make it work.

Finally, after a lot of leg work we managed to get a big client interested in our product. They saw the samples and were willing to place a large order. We have agreed on the price and stated that we would need a deposit on signing the contract and the balance paid in full within 30 days of delivery of goods. That would still mean that we would need to raise some finance as we pay the manufacturers upfront, but we were willing to go with that.

Two days later we got a phonecall, saying that they were still interested, but the conditions are - no deposit and 120 days credit terms.

I can understand the no deposit bit as we are a new company, but 120 days credit terms????

Can somebody advise - is this actually reasonable? Does this mean 120 days from signing the contract or 120 days from delivery of goods? (there is a big difference as the goods are about 12 weeks delivery). Is this a common situation or are they just trying to use the fact that we need this order?

Any comments would be greatly appreciated. Thank you.

 

[Spongebob]

This quandry is one faced by many small businesses; a big customer to answer all your prayers and help get your business moving...





...unfortunately in many (most?) cases it turns into a total nightmare! If you can fund the credit period though invoice finance or factoring then it may be worth a shot, but otherwise you are faced with raising the money through the bank, probably with your house as security. This is exactly how people lose their houses.

Unless you can arrange to factor and insure the debt and include the costs into the selling price to the customer, my advice would be to decline their business with thanks and to walk away.

Most people set up in business to be independent. Become reliant on big customers like this however, and you might as well be working for them. The adage about eggs and baskets was never truer.

Good luck with your business, and I hope that the interest shown by this potential customer has boosted your confidence that you have a good product and that you will soon be able to assemble a network of smaller customers who will accept reasonable trading terms.

Big companies unfortunately, are often bullies.

 

[Tej]

Hello, I would be very grateful for your advice. We have started a new business earlier this year buying household goods from Europe and re-selling them (wholesale) here. So far things have been pretty quiet even though we are working all hours to make it work.

Finally, after a lot of leg work we managed to get a big client interested in our product. They saw the samples and were willing to place a large order. We have agreed on the price and stated that we would need a deposit on signing the contract and the balance paid in full within 30 days of delivery of goods. That would still mean that we would need to raise some finance as we pay the manufacturers upfront, but we were willing to go with that.

Two days later we got a phonecall, saying that they were still interested, but the conditions are - no deposit and 120 days credit terms.

I can understand the no deposit bit as we are a new company, but 120 days credit terms????

Can somebody advise - is this actually reasonable? Does this mean 120 days from signing the contract or 120 days from delivery of goods? (there is a big difference as the goods are about 12 weeks delivery). Is this a common situation or are they just trying to use the fact that we need this order?

Any comments would be greatly appreciated. Thank you.

I think it would mean payment 120 days from delivery.
These kind of customers take even longer to pay!!!.. If you are lucky!!!

I would walk away from this customer/order... and sleep a lot easier

just my 2 cents

 

[willitbe]

Walk away!!...120 days is a very long time, it will be more likely 140 by the time you get paid and your business growth will be depend on them paying the bill to order more products.

In essence you are loaning them your money for 4 months, they will punt the product, realise a profit, all at no cost to themselves. They may not re-order either!.

An added thought is this company may not be around in 4 months time.

It seems that the product is good enough, so take confidence from that and move forward.

 

[GRDCredit]

The two issues here are credit risk and whether you can afford to finance the deal

Several people on here - myself included - can help you with a credit check but only you can answer the finance question.

Gut feeling is to walk away. Even the likes of Tesco and B&Q only ask for 60/90 days credit -120 is just taking the proverbial

 

[JEREMY HAWKE]

No way

If you supplied Tesco B&Q or Asda the 120 days that they may expect would be tollerable as you know your going to be paid

Any other tin pot company is just not worth the risk they may go bust in five weeks.The biggest damage done to our business was the giving of credit and accepting very long credit terms .This caused many problems and it has only been the recent introdction of demanding payment upfront that means we are still here .We still give credit but not much !

Its always a good felling when you receive a big order but its always best to keep both feet on the ground and weigh up the potential risks.It is highly likly that the terms are being requested because they quite simply dont have the funds .The chances are they may never have the funds

The advice to factor the invoices is a solution but also an even bigger risk as you will be expected to personally garentee the funds and thats worse than waiting for the money from the customer .

Its not unreasonable to demand 50% upfront the the rest on delivery or in 14 days .This customer maybe putting presure on you as you are a new business however you need to be clear and unswayed with your credit terms .Make it clear that you are more than willling to walk away where there is the presence of risk.People always used to say you will never get payment up front ..!!!..I am noticing these day that this is all some people are doing !!

 

[JEREMY HAWKE]

The two issues here are credit risk and whether you can afford to finance the deal

Several people on here - myself included - can help you with a credit check but only you can answer the finance question.

Gut feeling is to walk away. Even the likes of Tesco and B&Q only ask for 60/90 days credit -120 is just taking the proverbial

Hey great minds think alike your were banging Tesco and B&Q into the type writter the same time as me

 

[GRDCredit]

Scary thing is I was thinking of you as I typed it!

 

[JEREMY HAWKE]

Now thats starting to worry me .Does anybody know anything about the law when being hunded by a stalker

 

[Aleyandra]

Walk away!!...120 days is a very long time, it will be more likely 140 by the time you get paid and your business growth will be depend on them paying the bill to order more products.

In essence you are loaning them your money for 4 months, they will punt the product, realise a profit, all at no cost to themselves.

This is eaxactly my fear! Guys, thank you so much for your comments!

Their company has been around for 50+ years and their turn over and profit/loss seem healthy so hopefully they will not go out of business. However, I can quite see them not paying on time. I am shoked that, judging from your references to B&Q, Asda, etc, big boys take the product, sell it and then use your money for four months. How does anybody afford it? :|

I have thought of invoice financing, but so far have only approached NatWest. Unfortunately they require for your business to have a turnover of £120k+ and we don't. I have tried re-mortgaging, but with the current house prices, there isn't much equity in my house.

To be honest, even the profit margin would not be good enough to warranty borrowing the money for four months as the initial agreement was based on a fairly quick turnaround.

The only way we could finance it is by scraping around and using our parents' and friends' savings, but that would mean using their money for 4-5 months and we really cannot do that.

Another complication is that the order would be split into 4 parts, which probably means that they would still owe us for the first lot, when they order the second, so at some point we would have to owe the bank or whoever double the amount.

We have another meeting with them next week and I think we are going to have to walk away unless they agree to 30-60 days max.

I will let you know how it goes. Thanks again