Customer Credit and Late Payment Fees

fredag den 8. oktober 2021 kl. 20.25.33 UTC+2 skrev snipped-for-privacy@gmail.com:

they haven't paid something you haven't shipped?

30 day payment terms means payment within 30 days, not "after" 30 days. If they have a built-in delay of up to 15 days, you need to be specifying 15 day terms so you get paid within 30 days.

You won't get them to change their accounting practices, so I'd notify them that I'll waive the late fee *this time* if they agree to 15 day terms in future. That way you get paid in 30 days, and they can use their established practices.

CH

and perhaps with lower penalty. 2% is common years ago when interest rate was close to 10%. But excessive in today's 0% interest rate.

The more usual term was "2% 10, net 30" which meant the seller gave a

2% discount for 10 day payment.

They have already refused adopting 15 day credit terms literally as if that is impossible. That's what bugs me is that they act as if they are entitled to my money for a minimum of 30 days. In the negotiations I had a line that retained title to the goods until they were paid for. I pointed out that was the only effective leverage I had to assure payment other than taking them to court. This was a complete no-go as if it was unheard of. I got my terms and conditions from a major PC manufacturer's T&Cs. So if they ever buy from that company they must accept the same conditions.

This is all about big companies thinking they have complete control over small suppliers. This is the final order of a product I supply and the entire process has been hugely ugly with the customer refusing to acknowledge the huge uncertainties in supply which go beyond the parts shortages everyone else is seeing. Two months into negotiations they stuck me with a preliminary price from the initial discussions which has resulted in profit erosion as my costs have increased. I'm not going to let them steal from me on credit terms in addition. I'm calling bullshit on this. I just need to do it in a way that I am legally entitled to. Since they have indicated they are refusing to pay the 2% late penalty, I believe I am justified in not shipping further product until they do. There is nothing in the agreement that sets a time limit to the overall process of delivering product or any specific schedule.

This has nothing to do with interest rates. This is a late payment penalty. The late payment penalty on my bills has not been reduced in the last 20 years, gone up in fact... significantly in many cases. The utility still charges 1.5%.

My understanding from a contractor that invoked it in the UK, is that an "Anton Piller" and/or "Mareva injunction" order is an effective nuclear weapon.

If the debt is acknowledged and above some amount, then the contractor can get the courts to freeze the company's assets. That gets their attention, and he reported the debt was delivered in cash by motorbike rider :)

There might be US equivalents

That is very common. Figure out when their accounting cycle is and make sure you invoice so that you hit a payment window. If those dates are right then you can try invoicing 5 business days prior at a guess.

Don't cut it too fine or "delayed" invoice approval will mean it goes into the next cycle. If they were anything like the lot I used to work for that would happen anyway (by design). IOW 45 days is when *they* intend to pay you irrespective of what it says on the invoice.

I don't know what it is like in the USA, but the aggressive large UK corporate I first worked for would only pay larger bills on 60 day terms after at least 120 days or when the bailiffs turned up to take away the fax machine. They prevented them taking the photocopier by leasing it.

They had a substantial department to handle debt chasers! I presume it must have been cost effective or they would not have done it.

The CFO was paid a quadratic bonus on the number of days free credit balance they extracted from suppliers. Typically they were on the stop list of two out three equivalent generic component suppliers. The volumes involved meant the suppliers put up with this abuse. ISTR this has now been made illegal in the UK but I wouldn't like to bet that it still doesn't happen with some of the aggressive accounting practices.

Things improved a bit after some enterprising debt collectors hit upon the idea of sending a tramp soaked in something like skunk oil to sit in the swanky reception of their London corporate HQ waiting for payment.

I always followed the rule that they would get no further work done or support with any of their problems until I got paid for the previous month. Once their customers started screaming at them I got paid.

You need to work out what their weakest point is and then use your leverage on that to get paid in a timely fashion.

You don't seem to understand. The timing of the payment has nothing to do with when I send the invoice. They do not pay any invoice prior to the DUE date, the end of the 30 day credit window. They pay at the first payment date AFTER the 30 days expire.

I send the invoice when shipment is made.

Their weakest point is not getting the units that I won't ship. This is for a product by a major networking company. They contract out their production (mostly the rack and stack portion) and my board is integrated into these systems by my customer (their CM). Because of the long negotiation period the delivery stretched into next year which is awkward for them because the CM's contract is ending Dec 31. With more delays more deliveries are pushed into next year and at some point this overflow becomes a huge headache for everyone (except me of course).

I don't feel good about the hassles this gives my counterpart at the CM. When I called the other day to discuss it, she expected me to simply acquiesce this absurdity. When I stood my ground and called her on the various issues she eventually got upset and said she didn't want to deal with this when she's having a party for her 40th anniversary with the company. We had similar issues during the negotiations so I'm not her favorite vendor to put it mildly.

They actually had the networking company contact me about this as if they had anything to do with it. When that guy tried to explain things to me I kept pointing out that their payments are late by design and he kept trying to say it's not "by design"... but it clearly IS!

Many firms have boilerplate language on their purchase orders. Unless you've explicitly modified those terms, they can point to that language and note your implicit agreement to them when you accepted the PO.

Its easier to just raise prices above what you want and offer a discount for early payment. This gives the customer an incentive to figure out how to get payment to you quicker. And, if they don't, you've charged them for the lateness -- without calling it a "late fee".

Of course, both are required lest they abuse your "patience".

People, surprisingly (or, perhaps NOT surprisingly!) have very different attitudes when money is involved. E.g., peer pressure often is a better motivator (or the equivalent in the business sense -- like being a bit less cooperative with their future "needs") than financial DISincentives.

E.g., "fine" someone for a practice and they can perform a simple calculation as to the value (to them) for engaging in it, despite what its value to YOU might be.

"I'll just pay the penalty and not worry about it..."

[I vaguely recall some studies to that effect. I'll have to search my literature.]

It's important because if YOU think a fine/penalty will encourage the behavior you seek, you may find yourself operating under very different assumptions than the parties whose behavior you are trying to modify!

Once you know their rules it is up to you to minimise your wait. Many companies only do a "cheque" run once or twice a month (which these days is ludicrous since payments are mostly by electronic funds transfer).

I pay in about two cheques a year these days and write almost none.

So you aim to only ship stuff in the two weeks of the month where the latency is at most 7 days. I suspect they are playing usual corporate accountancy tricks where someone is on a bonus for getting in the debts as fast as possible and paying their suppliers as slowly as possible.

If you know that they will pay then shipping and invoicing for it ASAP may still be the least worst option given where you are now.

So be it then. You ideally want their customer to be shouting at them for the product that you want to ship and get paid for. Somehow you seem to have allowed them to claim the high ground and have their customer blame you for them not paying you on time.

At some point you have to decide if they are a sufficiently valuable customer to continue to do business with. If their late payments are really messing up your cash flow then something has to give.

I'm amazed that you haven't been able to persuade their customer that unless and until you get paid they are not getting any more product or help with integrating it. I found that usually focussed minds once they had a difficult support issue with their customer(s) shouting at them.

As I said earlier the large corporate I once worked for took great pride in extracting nearly 120 days free credit from most of its suppliers (at least for the ones where there were three or more alternatives).

Yes, we have an agreement that supersedes the PO language.

Not when the price and terms were negotiated in advance. Did you read any of the posts I made?

That would suit me fine, but they don't want to pay the fee. Read my previous posts.

I'm not worried about their behavior other than paying the late fee.

Yes. Some people are penny pinchers. Cheap, cheap, cheap.

We give things away. We do loaners. We fix things for free. Customers love that.

E.g., peer pressure

Feelings matter as much as money. As my old mentor Melvin Goldstein used to say "The easiest thing in the world is not to sell."

It is not that they feel "hurt"/offended by your act. Rather, they are now *empowered*... you have set a price for that behavior and they can simply decide if it is worth it, to them (because THEY are teh ones who make the ultimate decision).

Fine me for being tardy returning a library book and I may decide it's "worth" 25c for me NOT to bring it back, *today*. And, I may make that same calculation tomorrow.

OTOH, if I feel like I am depriving someone else of having access to that book, I may make an extra effort to return it "on time".

Note the daycare reference in my followup post. How much would you be willing to pay for the privilege of NOT picking up your child at the agreed upon time? How much would the daycare providers who are thus forced to remain at work to ensure your kid is not left unattended be willing to accept for that "service"?

Keep in mind that the provider has no limits on how long they may be inconvenienced by your tardiness. When does the compensation fall short of YOUR inconvenience?

On Saturday, 9 October 2021 at 02:18:37 UTC-7, Martin Brown wrote: ...

That sounds like GEC when I worked for them (the Marconi-Elliott subsidiary).

It made working with some suppliers difficult as they would only take orders if we paid in advance, we had to do all sorts of tricks like breaking up orders into small amounts to get what we needed.

kw

Woah. This is an area that's /essential/ to company survival. You don't know the basics so put it in the hands of someone that does.

We don't know what's best because we haven't seen your contract with them. But as generalisations:

I would (almost) never ship anything while a customer is behind.

2% late fee is way too small, I normally run with 8-10%, with some negotiation room. Customers count on not paying late, and seldom do. With a large charge, the minute they're late you know they intend to never pay. I don't call it a late fee, just give 2 prices for payment within this time and after. I would not normally call a customer to discuss late payments. Communications on this stuff need to be in writing, and they need to all help build up a picture that leads the coming court case in your direction. I never discuss the customer's internal financial processes, it demonstrates a real lack of understanding of this whole area. But I'll listen, and if someone wants excessive credit times, if they're worth it I can wait. But the price goes up and the late fees do too. Being strapped for cashflow will cost you such deals. If they have any history of late payment, that becomes part of your expectations for future business. I let them have what they want, and charge accordingly, if it's something I can realistically do. ALWAYS retain legal ownership of product until paid for in full, including any late fees, extra charges etc. If you don't even know what your contract is, it's time to panic. You're way outside of anywhere you should be. That's like looking out the windscreen at 70mph and seeing only grass. Finally, I always look to make such matters nonpersonal, you should be planned ahead of time how you'll deal with each & every one, and it should always come out in your interest. If it's clear they won't pay, lose no time in extracting it from them. You should have multiple ways in mind to do this ahead of time. Eg court, taking their goods on account, remotely deactivating goods supplied, recovering goods delivered, winding up order, etc. You should never land yourself in an even game with a company 10+ times your size.

Do you know why HBO spent over a million dollars to have Videocipher II developed? Time-Warner paid all of their bills over 180 days late. With Videocipher II, all it took was a few keystrokes to shut down any cable system that was late by a single day. All of a sudden, Time -Warner was paying a few days before their payments were due. Time-Warner also put a lot of small companies out of business, by not paying on time. They had declared that they were going t own thee entire industry. I installed one of the first descramblers, at our headend, in Cincinnati, Ohio for Ma-Com's field testing. It was serial number 16.They hadn't announced the system at that time, but 30 days later they announced that within 60 days, every site that carried HBO would receive the equipment, and that their accounts had to be up to date before it would be activated. Wikipedia stats the first units were seperate desk top style units. They weren't. They were rack mounted, and the had fail through designed in, so a second unit could take over. This was never implemented by HBO when they realized that MSOs would take the spare to another site to avoid paying for the service. It was useful for private networks, like PBS to feed their affiliated TV stations. Don't push too hard, they may have someone design a replacement and stop buying from you.

I appreciate your advice. This is not an emergency. The customer has paid for the goods. The customer will continue to pay for all goods shipped. There are only two issues. One is that they do not want to pay the late payment penalty for being a week past the due date going forward. The other is that they don't want to pay the full 2% on this one payment being late, but expect the late payment fee to be prorated by the day!

If they wanted to pay 60 days or 90 days after delivery/invoicing it could be a huge issue for me. At the moment it's not so big an issue. In fact, I can only build a small portion of the total order right now because some parts are delayed because of the shipping problems at our sea ports. I am at least in the black going forward. I need to pay an invoice or two, but have the funds in the bank to do that. Once we start shipping again the payments will be significantly larger than the invoices and my company will not have trouble paying them even with 45 days of payment delays. So no emergency. But my company is not a bank and I'm not interested in lending money beyond 30 days.

I am put out by the arrogant attitude of my contact. On one hand she sounds like she is powerless to make any reasonable accommodations to actually pay these invoices on time. On the other hand she feels I should jump through hoops to conduct business the way all her other vendors do rather than as negotiated in the Terms and Conditions of sale. That doesn't sit with me.

BTW, it may not be indicated in the T&C the ownership of the goods delivered is retained by my company until payment is made, but legal precedence says a lien can be filed against the goods. It's just a bit more legal work. Something like that would really put the fear of god into them as it will get the attention of the higher ups in the company and that's the last thing a mid-level executive wants.

<<< snip >>>

They would have to work fast! That was actually threatened during the negotiations when my costs were rising with the delays and I tried to pass on those rising costs. But there are some complexities which I've mentioned briefly here and in more detail in other threads which make that awkward for them. Still, I took the threat seriously and started to comply with some of the demands so I did not lose this order.

The long term concerns are not an issue. You may not have read the this full thread where I state this order is the final order of this product for two reasons. The product goes into equipment that is not RoHS. The company selling the equipment is, at the end of the year, switching contract manufacturers (CM) to a company that does not handle non-RoHS work... AT ALL. Because of the early on negotiation delays our delivery was pushed out into March of 2022. They asked for a plan to mitigate this, but we had already NCNR ordered materials with long lead times, making the cost of rebuying those materials through brokers very expensive. So that was rejected and they will deal with the delays. They ARE NOT worried about the delays impacting their customers because these goods are sold through contracts that take years to negotiate. So anything in first half of 2022 is fine. The bulk of the units go into inventory to support the next several years of sales. After that the product my units go into will be redesigned, most likely incorporating my units into the rest of their product as a standard feature which can be enabled by software.

So I'm not worried about injuring my relationship with the CM who is being replaced when the product I sell is no longer needed. My concern right now is saving every penny I can on the production of this order.