Home – New Forums Money matters Is witholding payments a common accounting practice?

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  • #995484
    gingerbeardhs
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    I’m going to blow a little steam here:

    I have a commercial client who gets me to do handyman work for storefronts and shops in the area. Every single invoice I’ve issued to these guys I’ve had to chase up after 40+ days of not being paid. Every single time there has been a “processing error” or some such.

    I’ve heard it through the “grapevine” that some accountants advise to their clients to wait for a follow up on an invoice before payment as the interest earns them a little more money before getting paid. It sounds like to me this is what is going on here. I know its not going to win me friends but this client is the only one who gets charged a separate call out fee to labour because of this reason. I’m also about to drop them as a client as I don’t want to maintain a relationship with an organisation that I have to contact everytime I want to get paid.

    Is holding on to payments something that accountants advise or could it be that this client isn’t particularly efficient? Accountants: if it is something you advise your clients to do, then be aware that the service provider may “value add” to the invoice to offset the time and energy to follow up every single time.

    #1202133
    tfowler
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    Hi,
    Unfortunately things have changed a great deal over the years, when I first started in credit (a very long time ago) – 80% of your customers paid on time without prompting and 20% had to be chased up… These days 20% just pay, and 80% have to be followed up.
    With cash flow being tight, I know of huge companies that wont pay unless they have been contacted at least twice – to keep their funds in their accounts for as long as possible… the push to GET paid quickly, and pay others slowly has grown in momentum over the years.
    One thing I would suggest is to contact them a few days before the debt is due – a confirmation call if you will – to confirm they have the invoice(s) in the system and to confirm the date they have it pegged for payment. I have had great success with this tactic.

    cheers

    Tracy

    #1202134
    gingerbeardhs
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    Thanks Tracy,

    The issue is I’d rather be getting on with business than contacting an organisation to chase a payment. It interrupts my work flow and makes me incredibly frustrated to the point that for this particular company, when I get paid I will be asking them to not approach me for work anymore.

    #1202135
    Johny
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    One thing I would suggest is to contact them a few days before the debt is due – a confirmation call if you will – to confirm they have the invoice(s) in the system and to confirm the date they have it pegged for payment. I have had great success with this tactic.

    Fair enough if that works for you, but ……why should you have to?

    That is the point as far as I see it.

    You buy something/get work done, you get invoiced, you pay when it’s due. It’s not that hard.

    The only reasons for not doing so would be that you are unhappy with the work in which case you would complain or wouldn’t ask for repeat business anyway, or you are skinflinting, which then becomes an additional cost for the supplier.

    Mr Gingerbeard, the ways I have overcome this before are:-

    1. Explained the importance of getting paid ontime
    2. Getting paid in advance
    3. Cutting them loose

    Agree with the concept that thosewho think they are saving a few dollars are often paying more in the long run because they are being charged more to cover them.

    Never good to lose a client, and I always think it is better to at least try and address these types of issues before making a final decision, but sometimes I agree the hassle just isn’t worth it.

    #1202136
    Taylored
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    OK, I cant speak for “all” accountants but deliberately stuffing people around is not good business and is not something I recommend to my clients but your opening post brings up a few points I think might be worth mulling over.

    Firstly, what are your credit terms? Do you have an unrealistic expectation of when you think you are going to be paid? He who pays the piper calls the tune. When you work with organisations rather than the general public the rules change and you need to work within them. You might expect payment in 7-14 days in an industry that typically pays in 30 Days EOM. They will not do a mid month bill run just to pay your bill. It will go into the system and they all get paid at the same time. Also, and I am guessing here, if you are dealing with real estate agents note the word agent. It is common that they pass your bill on to the property owner who pays them who pays you. They are not banks. Most organisations will wait for their customer to pay them and then they pay you and that is something I do advise my clients to do (cashflow management).
    If they are providing regular work and its decent recurring money, learn and understand how their system works. Send regular statements at month end. You are not dealing with owners, you are dealing with staff. Often the invoice doesnt get to the people who actually pay the bill, its in somebodies glovebox or in their workshirts. The statement alerts Accounts payable that an invoice is missing (at statement time AccPay staff ring each other so much looking for missing invoices that I am now on first name terms with most of my clients regular customers). Start chasing invoices as soon as they become overdue. 9/10 times its gone missing or there is an error somewhere. Rarely are they deliberately withholding payment, its usually a system or clerical error somewhere. If possible, never work without a purchase order number because that means its in the system somewhere at least but this is not always practically possible. Anyway

    hth

    Marc

    #1202137
    bb1
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    My accountant has never suggested it.

    But I have spoken to a few business advisors / coaches / whatever they call themselves on any given day of the week. And it is definitely one tactic they have in their arsenal to justify the high amounts they want to be paid.

    My view with that client, ask them why, if they cant explain a valid reason. wait for their payment to come through than. Dump them. You don’t need or want the hassle. Sorry I don’t have patients for other peoples game plays.

    #1202138
    MichaelF
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    I would definitely not advise any of my clients to do this. Wait until the due date, sure, but don’t consistently be late with your payments.

    The negative affect on the business relationship far outweighs the extra income earned from withholding the payment.

    #1202139
    gingerbeardhs
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    Every time I’ve called, it’s been a ‘systematic error’ or ‘it’s been approved so it should have been paid’ and once I ring, it gets transferred within a day or two.

    I don’t think I’m being unreasonable. While I put immediate terms on my invoices, I don’t expect them to get paid immediately but I think 40+ days and a consistent ‘systematic error’ are cause for frustration.

    These guys are also on my back if I don’t attend the job within a few days, and my accounting software can tell me if they have received the email and viewed the invoice.

    Real Estate agents don’t tend to be a problem, the ones I service have 14 day payment cycles and are pretty consistent. I’ve thought about adding a clause along the lines of ‘payments not received within 14 days attract a 20% surcharge to cover costs unless other terms have been negotiated’ but then that would rub my good clients the wrong way.

    I plan on dropping them once I’m paid, but I’m also venting frustration at the situation.

    #1202140
    bb1
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    gingerbeardhs, post: 239749, member: 84763 wrote:
    I’ve thought about adding a clause along the lines of ‘payments not received within 14 days attract a 20% surcharge to cover costs unless other terms have been negotiated’ but then that would rub my good clients the wrong way..

    Not sure what accounting package you use, but MYOB will automatically send different invoice templates to different clients, so if your software allows it, just have specific clauses for specific clients.

    #1202141
    Chrispro
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    gingerbeardhs, post: 239749, member: 84763 wrote:
    Every time I’ve called, it’s been a ‘systematic error’ or ‘it’s been approved so it should have been paid’ and once I ring, it gets transferred within a day or two.

    I don’t think I’m being unreasonable. While I put immediate terms on my invoices, I don’t expect them to get paid immediately but I think 40+ days and a consistent ‘systematic error’ are cause for frustration.

    These guys are also on my back if I don’t attend the job within a few days, and my accounting software can tell me if they have received the email and viewed the invoice.

    Real Estate agents don’t tend to be a problem, the ones I service have 14 day payment cycles and are pretty consistent. I’ve thought about adding a clause along the lines of ‘payments not received within 14 days attract a 20% surcharge to cover costs unless other terms have been negotiated’ but then that would rub my good clients the wrong way.

    I plan on dropping them once I’m paid, but I’m also venting frustration at the situation.
    I’ve had a similar situation with a particular client who took AGES to pay. Yet when he called with an issue he wanted it fixed yesterday (I’m in IT). After a bunch of overdue notices which were ignored I waited till I next received an email from the receptionist asking for something to be fixed. I replied to her as follows:
    “I’ll look at it when I get a chance. I can’t really prioritise this sort of thing when my bills aren’t getting paid unfortunately.” However I did proceed to mention a couple of bits of info I would need to troubleshoot the issue. I received a ‘point taken’ email from the owner a short time later and payment the next day. You might want to try something similar.

    Mind you, it appears that this company needs a similar reminder on their current invoice. It’s always the same ones. Hmmm…

    #1202142
    Greg_M
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    The last couple of years I worked in commercial construction it had become standard practise to pay late and often not at all…probably the main reason I exited after 40 years.

    Several contemporaries of mine are in the process of exiting the industry for the same reason.

    #1202143
    2nite
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    Things to help you overcome this.

    State in your invoices your credit terms.
    Offer discounts for paying early.
    Charge interest once they exceed your terms.

    #1202144
    James Millar
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    Pay everyone on time or early. If you can’t then don’t use their service in the first place. In my view paying a small business late a a tactic to manage your cash flow is indicative of poor cash flow management.

    Also worth noting that the technical definition of “insolvent trading” for a company under the Corporations Act is when it trades and is unable to pay debts when they are due. So if accountants are encouraging clients to miss payment due dates they may be complicit in directors exposure for insolvent trading under Section 588G. Who do you think the directors will point the finger at….”your Honour my accountant advised that I should defer paying creditors to manage our cash flow problems and that this was an acceptable tactic”. Great advice.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1202145
    Rohan@TD
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    bb1, post: 239744, member: 53375 wrote:
    But I have spoken to a few business advisors / coaches / whatever they call themselves on any given day of the week. And it is definitely one tactic they have in their arsenal to justify the high amounts they want to be paid.

    This is terrible advice, it erodes the trust relationship you should have with the organisations you partner with or support. If they consider this ‘value adding’, I’d get rid of them.

    #1202146
    LucasArthur
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    treat those how you wish to be treated… should about cover it?

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
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