Some common sense on late payments
Posted 24 July 2008 at 8:53AM by Ian Betteridge in Investment and finance
The other day I was filming an interview for BT Business Insight, as part of a series which talks to entrepreneurs about their experiences of setting up a company. One of the questions that I always ask is about the challenges they faced, and the most consistent answer is simple: "cashflow".
Cashflow management is something of a black art. But what often makes it more difficult than it needs to be is the baffling inability of companies - particularly large ones - to pay you in anything like a reasonable amount of time.
During my period as a sole trader, this proved to be a nightmare. Cheques were often "in the post" only to mysteriously vanish en route. Electronic payments were made, but then magically unmade. And larger companies would simply insist that they couldn't possible pay you in less than 90 days.
Given that the same companies would demand money from their customers within seconds, this always seemed like a bit of a stretch. Did all the hyper-efficient accounts people work squeezing money from customers, while the team sending out the cash was staffed solely with kids on work experience?
That's why the victory by a two-man company against retail giant Alliance Boots was so gratifying. When Alliance Boots announced it was changing its payment terms from 30 days to 75 from receipt of invoice, they threatened it with court action - and it backed down.
Of course, the law was on their side. But this isn't just a victory for the law, but for common sense. Let's hope some other large companies follow suit.
Tags: bt, bt broadbandoffice, payments
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Comments
2. At July 25, 2008 1:14 PM, Andy Beaves wrote:
If you are in the unlucky situation of relying on one maybe two large customers for your work, then you are pretty much tied to their terms. I, thankfully, have a large customer base, Lloyds, HBOS, BBC, C4 etc, etc... I proforma invoice almost everyone I deal with. With the ones I invoice, I set the terms for payment not them. I get them to agree to the terms which gives me a nice lever if there is a delay, which, "touch wood", has been rare, then only 40 to 60 days
3. At July 28, 2008 12:52 PM, David Chapman wrote:
It is a very difficult to know exactly what to do. Should you be strict and risk losing the customer to a competitor or do you work on the principle that it is better to be owed the money. Our terms are 30 days eom, but hardly any of our customers pay to this, but most pay between 45-60. However because of the size of our business we can easily spot which of our customers are paying later and later, and we take the appropriate action. Charging interest on late payments is not an option for us, so when things get out of hand we go straight to the Solicitor. By this stage we don't want the customer anyway so it doesn't matter if they get upset and move to a different supplier.
4. At July 29, 2008 8:18 PM, James Lyon wrote:
I now have a small mailorder Company and always require payment upfront - I cannot afford not to paid for items.
Some years ago I was a Computer Systems Consultant and invoiced weekly and was paid weekly - If No payment then, the work did not proceed until payment was received. These were my terms for taking on the Contract.
In the past I have sat for a short while outside a Company with a large sign saying that I was waiting for payment. Yes, I soon received a cheque in part payment - The balance went through small claims court.
I have in the past threatened to take items off the production line unless payment was received within 48 hours. (A major International Motor Company with factory in Holland) It worked - Cheque arrived from UK Plant.
Many years ago we were the Sole supplier, in the North West, of Ministry Approved Hydraulic Fittings. The Shipbuilder urgently required supplies for an Aircraft Carrier leaving port within 12 hours. They said that they could not pay up as there was nobody to sign a cheque. I said no cheque, no fittings. Within the hour a cheque arrived.
Think very carefully if you are a small company dealing with large organisations. Try to build something into the contract that will protect you and possibly hurt or embarrass your customer if things eventually go wrong.
If you do not get paid you might go under yourself because you too have bills to pay.
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1. At July 24, 2008 3:43 PM, Rex Hanson wrote: