payment options

[texfoto]

I'll share my experience working with corporations and I'm going to concentrate on your statement about working with "corporations".

I purchase from time to time from vendors. Orders range from $50 - $200K and orders are placed via purchase order (PO). They then invoice us when they want to get paid and reference the PO.

It doesn't matter how big the vendor is, how thorough the credit check (Dun & Bradstreet) or how much business we do with them (one purchase or hundreds), the lead time for payment by past companies I've worked for has been between 1 and 3 months.

I've known some sales people for these vendors over the years. It is standard practice. They receive commission as long as they have the PO in hand. Their company knows they'll receive payment as we have checked out credit wise.

To elaborate, I think it has to do with accounting methods still being batch processed (versus real time) if you know what I mean. Month end, quarterly, and yearly closing of the books, etc. My company gathers all the invoices, etc. and deal with them once a month or longer. They do their due diligence, dot their I's and cross their T's and make sure we received what we ordered and then pay up.

From my experience in seeing contracts, I doubt that early discounts for corporations will motivate them. Maybe for small businesses but I doubt it for corporations. I've been offered substantial savings at times to have us order early, but paying early won't happen or in your view, in a timely manner.

If you put payment terms in a contract to get paid quicker, they may not do business with you. Their legal department will read the terms and possibly return it back with changes they propose which may include, "we render payment 65 days from invoice" or whatever their standard payment term is.

All this other talk about copyright infringement, discounts, etc. may have no affect. They may just not do business with you again.

I was hoping some accountants would chime in here or maybe if you know some folks who are controllers. They may be able to verify what I'm telling you. I guess my advice is, you'll have to ask and work out the terms of payment ahead of time and get them to agree before you write up the contract. You may just have to get paid every 65 days from invoice for some of these clients.

Hope this helps.

[Howard Barlow]

Originally Posted by brad

That's why I said its not worded correctly. The intent is true, the words are wrong. I agree with you, don't bite my head off.

I wasn't trying to bite your head off, Brad. I just wanted you to stick your neck out far enough so I could . I just never would have thought you would smack me in the eye. That's just wrong.

[STP Images]

Originally Posted by texfoto

If you put payment terms in a contract to get paid quicker, they may not do business with you. Their legal department will read the terms and possibly return it back with changes they propose which may include, "we render payment 65 days from invoice" or whatever their standard payment term is.

That is true, they will ATTEMPT to do that. However, if a client asks me to invoice them for later payment for services I render today, they are requesting 'credit' from me. As the issuing entity of said credit, I dictate the terms, not the recipient of the credit. I would LOVE to tell my credit holders that even though they are extending me credit, I will dictate when they get paid.

I'm about to post a sign in my studio that my Father had in his management office for years - "In God we trust, all others pay cash".

[CaptainTom]

Sign in office

Credit is extended upon contacting credit officer. signed Helen Waite

i.e. if you want credit, go to Helen Waite.

[brad]

Originally Posted by Howard Barlow

I wasn't trying to bite your head off, Brad. I just wanted you to stick your neck out far enough so I could Attachment 105113. I just never would have thought you would smack me in the eye. That's just wrong.

Attachment 105114Attachment 105115

You just gotta put your hand up on the bridge of your nose to avoid the poke in the eye. LOL

Its all good.. I was irritable last night, sorry.

[JohnT]

I find it interesting that some companies are always demanding payment on time, but getting them to pay you on time is like pulling teeth from an alligator. Sheesh.

[texfoto]

Originally Posted by STP Images

That is true, they will ATTEMPT to do that. However, if a client asks me to invoice them for later payment for services I render today, they are requesting 'credit' from me. As the issuing entity of said credit, I dictate the terms, not the recipient of the credit. I would LOVE to tell my credit holders that even though they are extending me credit, I will dictate when they get paid.

I'm about to post a sign in my studio that my Father had in his management office for years - "In God we trust, all others pay cash".

I understand what you are saying but I'm talking about standard practice with corporations and the likleyhood of getting agreements for YOUR desired payment terms ahead of time. The question is, do you keep the client or reject them because they won't pay you the day after tomorrow?

As smaller business owners I suspect none of you are doing credit checks on any of your clients, even the big companies. If they go belly up, you most likely won't get paid in this lifetime anyway.

If a client is consistently paying you later and later, that is a different situation.

[brad]

Originally Posted by texfoto

I understand what you are saying but I'm talking about standard practice with corporations and the likleyhood of getting agreements for YOUR desired payment terms ahead of time. The question is, do you keep the client or reject them because they won't pay you the day after tomorrow?

As smaller business owners I suspect none of you are doing credit checks on any of your clients, even the big companies. If they go belly up, you most likely won't get paid in this lifetime anyway.

If a client is consistently paying you later and later, that is a different situation.

As someone who is STILL owed more than $17K from a single client from my computer consulting days... I can fully relate to what you say here. :)

And to answer your first question.. depends on the client.. in some cases, yes, I would reject a client if they cannot meet my payment requirements... but not every one.

[Jeff Lane]

JohnT notes:

I find it interesting that some companies are always demanding payment on time, but getting them to pay you on time is like pulling teeth from an alligator. Sheesh.

There's a reason for this, especially if the buyer is a publicly traded company. Investment professionals recognize that there are some "good debts" and some "bad assets" with respect to balance sheets. In short, all those invoices that are outstanding for 45 or 60 days without anyone expecting payment or imposing penalties give you the opportunity to use the purchased assets without paying for them for awhile, and that's a good thing for the buyer and a terrible thing for the seller, who has provided a good or service for no payment for a while. This shows up on the balance sheet and cash flow statements in subtle ways, but they're there. The benefit of late payment accrues to the buyer whether it's a public or private company, but if it's a public company, the hints on the financial statements are interpreted as proving that the company has great financial power -- the power to demand instant income and to make you wait a durned long time for payment if you want to do business with the big gorrilla.

As to approaches to fight back: Janice has a creative and innovative approach -- using lack of prompt payment as an event to revoke the copyright license granted to the buyer. But as others have observed, you have to be careful how you word that kind of thing, because if you ever try to invoke that provision, a smart aleck lawyer (like me, for instance) could possibly invalidate a poorly worded provision, and even if I fail in that effort, I could durned sure make the litigation costly enough to not make it worth your while fighting it.

The same thing is true with penalties. For example, Todd imposes a $50 "penalty" for late payment. If that is imposed on an invoice of $300,000, it's likely to be viewed differently than if it's imposed on an invoice of $80.00. There is some law out there that would completely vitiate unreasonable penalty clauses (that law applies even more so if you have the audacity to call it a "penalty" to begin with), and there is also some law out there that might impose some pretty severe sanctions under the usury laws, if you fail to word things just right, including forfeiting the principle of the debt (in other words, giving away your work for nothing).

That's why Howard advises:

If you want a contract, hire an attorney who specializes in contracts in YOUR state. Using a contract you like from another photographer is like taking prescription meds that are helping another person. Things are not always equal.

As a businessman, I should really love folks who do their own lawyering and cut and paste clauses from somebody else's contracts -- when the poop hits the oscillator blades, it always means a huge fee for me as a lawyer. But as a nice guy (I know, it's contrary to my professional nature), it does bother me when my clients lose tons of money because they tried to save a nickel in setting up their form contracts. And believe me, I've had lots of clients waste way too much money trying to be their own lawyers.

An ounce of prevention, folks.

[T. Adam Martin]

The benefit of late payment accrues to the buyer whether it's a public or private company, but if it's a public company, the hints on the financial statements are interpreted as proving that the company has great financial power -- the power to demand instant income and to make you wait a durned long time for payment if you want to do business with the big gorrilla.

The benefit is an extended cash cycle. By extending terms, you lower your required working capital and don't need to have as much cash on hand. When working with bigger businesses, they can dictate terms and exert more force on you, the smaller supplier. In essence, they are borrowing from you and if you are not charging enough to cover the time value of money (especially in the present economy), they're getting a discount.

If you are funding your working capital with debt, then you should AT LEAST be charging the amortized debt rate past the 30 days so you can be made whole. If you are funding from cash, I'd use a reasonable cost of capital rate for invoices that go past 30 days. But this must be in the contract.

[CaptainTom]

I sent them an email requesting payment and they said that the 65 days was not until July 20th, when the check would be issued. If I have a problem with their payment schedule, I should contact them and be taken off the "preferred" vendor list.....

Next time I deal with them, they will pay more than the interest accrued.

[JohnT]

Originally Posted by CaptainTom

I sent them an email requesting payment and they said that the 65 days was not until July 20th, when the check would be issued. If I have a problem with their payment schedule, I should contact them and be taken off the "preferred" vendor list.....

Next time I deal with them, they will pay more than the interest accrued.

I wish I could my bills any danged time I want.

[ronocnikral]

Originally Posted by T. Adam Martin

The benefit is an extended cash cycle. By extending terms, you lower your required working capital and don't need to have as much cash on hand. When working with bigger businesses, they can dictate terms and exert more force on you, the smaller supplier. In essence, they are borrowing from you and if you are not charging enough to cover the time value of money (especially in the present economy), they're getting a discount.

If you are funding your working capital with debt, then you should AT LEAST be charging the amortized debt rate past the 30 days so you can be made whole. If you are funding from cash, I'd use a reasonable cost of capital rate for invoices that go past 30 days. But this must be in the contract.

exactly, you are giving them a free loan. dell computers does an impeccable job at keeping their working capital negative.

luckily, we (as in my wife and me) have everything paid before we offer any services. but, we do realize the benefit of having cash, so we offer 15-20% off of any prints purchased at the time of booking. yeah, it cuts into our profit, but we have the cash and we can then make decisions with said cash.

on one hand, i'm against discounting to get people to pay what they owe you. but, on the other, momma's got to eat. some cash is better than a lien. even if you go to court, you most likely will never get paid. my uncle went to court over a dispute and won. he said, "great, when do I get my money" and the judge told him he most likely never would.

i would look at discounting for paying for any services or goods up front or at delivery, that way you have the cash, not discounting to get your invoices paid.

or...don't do business with companies with long billing cycles. or...bite the bullet and do what you need to do to get paid.

[texfoto]

Originally Posted by CaptainTom

I sent them an email requesting payment and they said that the 65 days was not until July 20th, when the check would be issued. If I have a problem with their payment schedule, I should contact them and be taken off the "preferred" vendor list.....

Next time I deal with them, they will pay more than the interest accrued.

Sounds like they are sticking to their payment schedule.

I don't blame you for making them pay more. I say, raise your rates with them. It's the cost they pay for your quick response (go to guy) and their extended payment schedule for services rendered. Might make it a little more worth it when you get that check 65 days from now.