Customer wanting 65 days EOM credit

[Banksbroo]

I've a new customer, initial looking at smallish under £1000 order. But they want 65 days End of Month credit. So up to 3 months credit. Customer is part of a larger UK based company. I'm inclined to say my standard 21 days will apply, otherwise it's a no. Saying yes feels like just encouraging sharp practice and giving free money to companies who can well afford to pay on time. Anyone else notice new customers are chancing their arm on credit terms?

 

[pentel]

Pro-forma for first order.

 

[DontAsk]

Pro-forma for first order.

This. I've never had a any pushback. Probably in a completely different market with smaller customers.

 

[JEREMY HAWKE]

I would not have a business if we agreed to the terms expected by larger companies.

Stick to your guns it's your business not theirs and when they go bust you won't have any money.

Demomstrating the willingness to walk away has always been important to me on this issue

 

[Newchodge]

I've a new customer, initial looking at smallish under £1000 order. But they want 65 days End of Month credit. So up to 3 months credit. Customer is part of a larger UK based company. I'm inclined to say my standard 21 days will apply, otherwise it's a no. Saying yes feels like just encouraging sharp practice and giving free money to companies who can well afford to pay on time. Anyone else notice new customers are chancing their arm on credit terms?

If they are that short of cash that they need 3 months credit for an order under £1,000, I wouldn't bother with them at all.

 

[MOIC]

If their orders increased in value, to a point where it affected your cashflow, could you continue to give 65 EOM credit?

Pro forma first time (if not every time), then your terms, if you're comfortable with it.

 

[Ian J]

Many large companies have terms that the majority of the members here would find unacceptable and it's up to the supplier whether he wishes to deal with them on their terms or not. Whilst the supermarkets will pay their raw food suppliers fairly quickly everyone else gets paid in 60 or 90 days.

For the oldies amongst us Arnold Weinstock built up a huge cash pile in the late sixties and early seventies in his company GEC by paying suppliers in 90 days and used that cash to buy English Electric, Marconi, Plessey and Siemens amongst others turning it into a massive group, all funded by their suppliers

As a matter of interest Arnold Weinstock was hugely instrumental in getting the invoice factoring on it's feet in the late sixties due to his tardy payments

 

[Mark T Jones]

You've kind of answered it, but what's the balance of power here?

Are you keen to sell, or are they keen to buy?

Always go back and see if there is potential to negotiate, but it's likely to be a no

If there is future value in the relationship, I'd get costs for factoring and credit insurance to see if the margins work (this is a useful exercise even if you have no intention of using them)

 

[pentel]

I'd get costs for factoring and credit insurance to see if the margins work

Would need to be a substantial amount of turnover to make this work.

 

[Ian J]

Would need to be a substantial amount of turnover to make this work.

Agreed as currently it's just one order for £1,000 so even if he looked at single invoice finance it would need larger invoices to make it worthwhile

 

[Chris Ashdown]

Pay on proforma, I always used to reply that we only consider credit applications after seeing a (6 to 12 month) trading history. As far as I can remember only a tiny percentage did not order

Buying a check on companies accounts can be a verry useful and low cost purchase and the basics often free

 

[JEREMY HAWKE]

Pay on proforma, I always used to reply that we only consider credit applications after seeing a (6 to 12 month) trading history. As far as I can remember only a tiny percentage did not order

Buying a check on companies accounts can be a verry useful and low cost purchase and the basics often free

Exactly They order it because they want or need it

 

[Banksbroo]

If their orders increased in value, to a point where it affected your cashflow, could you continue to give 65 EOM credit?

Pro forma first time (if not every time), then your terms, if you're comfortable with it.

Good point, cashflow would be fine for a few smaller orders, but would start to impact if they were regularly placing £10k orders, I'd always be missing £10k which was never quite available.

 

[Banksbroo]

Pay on proforma, I always used to reply that we only consider credit applications after seeing a (6 to 12 month) trading history. As far as I can remember only a tiny percentage did not order

Buying a check on companies accounts can be a very useful and low cost purchase and the basics often free

They are turning over over £250m with £20m profit. It's not their ability to pay, it's their unwillingness to pay!

 

[fisicx]

Just say no. I had a bank in South Africa want 90 days on a £200 project. Told them no, they quibbled, I cancelled then when they came back my quote had increased to £300. They paid in advance.

 

[HFE Signs]

No business needs bad payers, tell them their account terms are payment in full at point of order

 

[Paul Kelly ICHYB]

Many large companies have terms that the majority of the members here would find unacceptable

I know of at least one retailer where 90 days is standard.

If you can manage the CF pressure, ensure you build this into your costs at the beginning. Soon, they will ask for settlement discounts, marketing contributions etc. These are all things that should come out in the pre-order meetings with clients, but newbies find out the hard way.

I would go with the proforma and say that, going forward, is based in x days settlement. Any deviation is a x% surcharge per month, but, again, it is down to CF.

Another option is invoice discounting/factoring.

 

[Mark T Jones]

I know of at least one retailer where 90 days is standard.

If you can manage the CF pressure, ensure you build this into your costs at the beginning. Soon, they will ask for settlement discounts, marketing contributions etc. These are all things that should come out in the pre-order meetings with clients, but newbies find out the hard way.

I would go with the proforma and say that, going forward, is based in x days settlement. Any deviation is a x% surcharge per month, but, again, it is down to CF.

Another option is invoice discounting/factoring.

The FSB used to publish a 'hall of shame' list - companies whose official payment terms were in excess of 90 days (that includes 90-dat EOM

Unsurprisingly, it was mostly large retailers and construction companies

 

[Paul Kelly ICHYB]

Always remember, with EOM, it is better to deliver the last few days of the month ...

 

[Chris Ashdown]

They are turning over over £250m with £20m profit. It's not their ability to pay, it's their unwillingness to pay!

Thinking for all requests for terms, knowledge can potentially save you money

Shell the massive oil company wanted 90 days from eom, turned their order down and they paid by company credit card

 

[Mpg]

Tell them your prices are so low because you have good cash flow because your customers pay quickly. If that has to change then so do your prices.
Worked with us with a £600m turnover business, That spends over £3m a year with us. We get paid within 5 working days

 

[Ian J]

As a matter of interest do you know why they want to deal with you?

 

[AlanJ1]

I know of at least one retailer where 90 days is standard.

There's a lot of major retail at 60 days + EOM as standard.

All is negotiable though pending how much they want to deal with you vs you with them.

 

[Paul Kelly ICHYB]

The bottom line is, as a supplier, whilst you may not like it, are you happy yo accept the terms.

Are you willing to walk away from the order if they do not budge?

 

[Chris Ashdown]

Credit terms soon eats into your cashflow, Probably the largest cause of company failures. The reason they ask is often from their accounts department to help their cashflow rather than operations who need the item asap to stay in planning timetable

 

[ethical PR]

I've a new customer, initial looking at smallish under £1000 order. But they want 65 days End of Month credit. So up to 3 months credit. Customer is part of a larger UK based company. I'm inclined to say my standard 21 days will apply, otherwise it's a no. Saying yes feels like just encouraging sharp practice and giving free money to companies who can well afford to pay on time. Anyone else notice new customers are chancing their arm on credit terms?

Have you credit checked them?

 

[MikeJ]

We used to give credit regularly. Our competitors did, so we had to. We had fewer than 1% of customers turn into a bad debt, and almost all customers ordered more than once. However, for many new customers we asked for payment in advance. I don't think we credit checked anyone formally, but we'd take a look on Companies House to see how long they'd been around, etc. A few things to consider...

1) Are they going to pay? Small company you've not heard of is quite different to a blue chip company. Though the latter can be really awkward - I think it was Thames Water that returned our invoice because of an extra full stop.
2) What's it going to cost you? If you're cash positive, then all you're losing is any interest on your money, which in real terms is next to nothing. But if you're having to finance it, it's more expensive.
3) What's your margin like? Higher margins are much easier to give credit on. If you're at 75% GM, then you lose £250 if they don't pay but gain £750 if they do. That's a much better gamble than losing £950 to gain £50. GM also affects your funding of the credit of course.
4) How badly do you want that order? Could it lead to much bigger things?

As an aside, there's no better feeling than having an invoice settled that you'd given up on.

Had one company go bust on us, leaving us a few grand out of pocket. The Phoenix that arose from the ashes seemed quite surprised we weren't willing to offer them the same credit terms as their previous company...

 

[DontAsk]

We used to give credit regularly. Our competitors did, so we had to. We had fewer than 1% of customers turn into a bad debt, and almost all customers ordered more than once. However, for many new customers we asked for payment in advance. I don't think we credit checked anyone formally, but we'd take a look on Companies House to see how long they'd been around, etc. A few things to consider...

That's what I do, even for overseas customers. First order is subject to a minimum value with up-front payment in full.

Only ever had one defaulter in 20+ years. The business was sold, without me realising, and the new owner ghosted me after ordering. It was in France and after Brexit so very diffciult to bring a small claim against them.

 

[Chris Ashdown]

That's what I do, even for overseas customers. First order is subject to a minimum value with up-front payment in full.

Only ever had one defaulter in 20+ years. The business was sold, without me realising, and the new owner ghosted me after ordering. It was in France and after Brexit so very diffciult to bring a small claim against them.

"We used to give credit regularly. Our competitors did, so we had to.otally" False logic, the death of many small companies

 

[DontAsk]

"We used to give credit regularly. Our competitors did, so we had to.otally" False logic, the death of many small companies

You're quoting the wrong post.

 

[MikeJ]

"We used to give credit regularly. Our competitors did, so we had to.otally" False logic, the death of many small companies

Yeah, but I guess that's why we stopped being small.

 

[Chris Ashdown]

You're quoting the wrong post.

Yes sorry

 

[xjr13m]

I've a new customer, initial looking at smallish under £1000 order. But they want 65 days End of Month credit. So up to 3 months credit. Customer is part of a larger UK based company. I'm inclined to say my standard 21 days will apply, otherwise it's a no. Saying yes feels like just encouraging sharp practice and giving free money to companies who can well afford to pay on time. Anyone else notice new customers are chancing their arm on credit terms?

It depends how much value they can provide as a customer, not just for now but for the future, and of course whether your cash flow will support it. I started dealing with a household name company in 2010, they also wanted 65 days EOM. Cashflow was tricky in the beginning but 14 years on I'm now doing £75K plus with them a year. They always pay on the nose at 65 days EOM and they always place a PO for my quotations without any haggling or discussion over price. I have another 'blue chip' customer that shockingly pays 120 days EOM! For them I uplift my quotatations by 15% as a 'charge' for the credit facility I'm providing, never gets questioned.