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  • #1008164
    EagerToSucceed
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    Manufacturing sheet metal products/ductwork.
    Unfortunately, when it comes to dealing with suppliers (our wholesale maket), they tend to need longer terms of payment due to large stock levels required at all times. The goods that they purchase tend to sit on their floor for up to a month therefore affecting their possibility for investment if the goods were to have been paid prior to delivery, especially if the goods are not sold during that month. The more credit they have at hand the more room for investment they have, and therefore bring us more business. In case of liquidation, those goods can be returned to us if accepted (as the goods remain our property until paid for in full).
    30 day accounts allow for more growth for you and your customer. How much credit limit you give is another story.
    Example:
    Client has approached us from the word of mouth wanting to start his business from scratch. He needed an account so that goods can be supplied. After signing contracts, an account was opened. That customer has went from 1K dollars per month to 15K per month. Another client we have operates on 30 Day basis, we agreed to 30 day terms, contract signed and now their annual purchases exceed $700K p.a. proving to be our biggest client.
    Without opening up the initial 30 Day account we ourselves would not have been able to have invested in our business.
    Don’t get me wrong though, certain jobs require payment in stages (custom work/duct lines). Those goods can not be returned. As the client relies on you to complete the work (if not THEY are liable for the dellays to the builder), they will have no choice but to pay.
    You definately should be careful who you give credit to, and that all the paperwork has been signed with a personal/directors guarantee if needed. My suggestion is to always ALWAYS do a credit check and if they are running late with their payment check the credit limit and talk to the client directly. More than often a solution can be brough forward. There are bad eggs though, and if all fails, you can always apply for a VCAT hearing which only costs $350.00. that cost is payable by the debtor as it should state in T&CoT.

    Honestly, I wish our margins were big enough to allow for discounts :)

    The joys of manufacturing for wholesale.

    #1008165
    Credit Manager
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    Sounds like a good business to me.
    Often credit terms are influenced by the marketplace and in order to succeed in a competitive environment, you must match or exceed what your competitors are offering in terms of credit.

    That’s when you need to be confident that your terms of trade can be relied upon.

    Provided you take precautions, you can minimise the risk of bad debts. By using credit checks and Personal Guarantees, it sounds like you are doing so.

    Credit Checks can be cost prohibitive for some of us soloist, Eager, and i reckon a number of those Guarantees would come back unsigned.

    BTW, do use Veda, D&B, or is there a better offering out there?

    With the addition of clauses to cover collection costs, and appropriate privacy dosclosures to allow you to research personal credit history as well as commercial, it sounds like you have it covered.

    Just out for those sneaky administrators who sell your gear before you have a chance to get it back :)
    Paul
    http://www.nbservices.com.au

    #1008166
    Benedict
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    My stance is certainly not that credit shouldn’t exist in trade, simply that credit in trade should be on similar footing as other credit transactions with value (interest) of some kind returning to the credit provider. That value needs to be more than a vague promise of lifting the threat of taking business elsewhere. There needs to be a clear win-win investment agreement.

    The ‘discount’ I suggested is not really to lower your prices but to levy those who use your cash to bolster their business. Your steel sitting waiting on their floor is not a genuine excuse for non-payment as they have steel that you could otherwise have sold elsewhere. That steel sitting unpaid is not business. It is speculation (gambling) until it is paid for.

    You may find though that if you look at delinquencies that there is an average loss that you could offer 50% of as early payment discount and over time be better off. Of course you have to look at the possibility that those who don’t pay when on terms are not those who will take up early payment offers so you may gain little overall benefit. A good Business Accountant should be able to help here.

    Can you differentiate your steel product or delivery in some way to make yourself unique and better in ways that others will find hard to match (new technologies etc)? That would allow you to set higher prices. Look at Apple who sell products at above market prices and are growing.

    :-)

    #1008167
    thevisionary
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    Hi all,

    This is a timely thread for me and I hope someone can give some advice for my situation…

    We are a video production business and have been for 20 years. A very large proportion of our money comes from doing freelance TV news. It is great money, but most times it takes 90 days and more to be paid, when our terms are on receipt. We are dealing with large media companies. We don’t REALLY expect to be paid quickly, but at this very moment we are owed $30k – and that is a lot of money for a small business if you only have a few clients like these.

    Up until recently we were contracted to remain exclusive to one of these networks, and the deal stipulated we were not to work for ANY other client in the process. In hindsight – and although the money was sweet – it was painting ourselves into a corner. If the deal ever went sour (which it did) it would be like starting the business all over again. Now we are back to freelance, doing news and corporate videos as well. Trying to find other sources of income.

    We are very good at news, we know what we are doing and pretty much have a monopoly in our area. But we really only have a potential of 4 clients in this field of income. ABC, Seven, Nine and Ten. If most of our income comes from them, and they all want the same stories from us, and they all pay on 90 or more days, it is not uncommon to have no money at all coming in for months at a time and then a whole lot in one go. Bad for cashflow. Bad for my health.

    Ok, we can build up our clients from other areas of video production, but that takes TIME…so I thought perhaps to avoid these regular cashflow problems caused by the networks paying so slowly, was to stipulate and charge a monthly “operations fee” to each of these companies whilst waiting for work – just to be “available” to them. Those who did not accept this arrangement would be charged DOUBLE that to those who pay the monthly operations fee for each job I do for them. Those who did pay the fee would be charged a lesser rate for the work when it happens.

    So, cashflow issues are solved, all monthly debts covered and all our stress gone. All solved by sticking perhaps a $1000 per month bill into each of the participating media outlets.

    Would this work? Sure, they could dump me, but I am the only one in the area and I am available and know my stuff. But would that matter to them?

    I was also told that there are legal ramifications to charging such a fee? I think they called it “fee-for-service operation” and is a borderline practice in some places….

    But I would certainly like any thoughts from those of you out there who might do a similar thing, or those of you who know some pitfalls of doing something like this…

    #1008168
    [Former] FS Concierge
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    Hi there – sorry that I don’t know your name to say hello properly!

    Reading this and your other post, I can see that you have some enormous decisions to make, and the pressure must be really stressful. I won’t attempt to comment on the issues surrounding your debts, as there are others here that are way more qualified than me to help you on that front.

    But, I did want to let you know that I have had similar issues with some of my print media clients to the ones you are facing with broadcast.

    In magazine publishing in particular, it is not uncommon for the leadtime to write a story to be mega-tight, but then you don’t get paid til publication – sometimes 90 days later. Working that way is no more feasible for me than it is for you, so there are some magazines that I just don’t work for any more.

    But there were a couple that I really love working with that used to pay me that way. I ended up taking the step of ringing a few editors that I had good relationships with and really wanted to keep working for, and saying to them: “I love working with you but your payment cycle is killing me. What do I need to do to get my payment terms shifted from 90 days to 30 or less?”

    Is that something you could do? I know you’re in a regional centre, so there are unlikely to be many people in your local area who are as good at freelance news as you are. Your contacts at the networks would probably be reluctant to lose you!

    The worst that happens when you have this conversation is that they stick to their guns and you are no worse off than you are now. (If the idea is scary to you, write yourself a script and practice a few times before you pick up the phone!)

    The other option is to start ringing the accounts payable departments of the networks on a regular basis and asking them when you are going to get paid. Developing a relationship with one or two of the staff there may be very worthwhile – if necessary, ask the people who commission you who is the best person in the accounts department to talk to.

    Best of luck – let us know how you get on.
    Jayne

    #1008170
    Burgo
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    It hurts when customers dont pay.

    20 odd years ago I was asked to run a contract cleaning business that was turning over many thousands of dollars a month, but they had a cash flow problem. The larger contracts were taking 90 days for the money to get into the bank. I would visit the managing agents regularly asking for payment and occassionally I would get a cheque from them, which didnt bring their account back to zero.

    I took out a list of the slow payers and sent them a final notice, no money no cleaning with seven days to pay.

    We actually lost a third of out business and it took months to get all money owed back to us.

    However within three months of taking this action I had rebuilt the business to a point where it was actually doing double the income of what it was doing when I took over and every contract was paid 14 days no later or the cleaning ceased. We were one of the first contract cleaning business to do this. Needless to say when I sold the business a few years later we got top dollar for it.

    Another treatment for slow payers is to gradually increase your prices. I used to clean a Church. Naturally I didnt charge the going rate I let then have it for 20% less which suited me. A new treasurer was appointed who decided that I should be paid every two months. I requested payment be made on the 1st day of every month, she ignored this and continued paying every two months so I then started to increase my prices by 20% each month until someone mentioned that I was getting expensive. We then agreed on a price and a payment date which kept going until I decided I didnt want to clean Churches anymore. So there is more than one way to skin a cat.

    I do like payment up front, makes things much easier.

    #1008171
    designmill
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    FS Concierge, post: 16781 wrote:
    But there were a couple that I really love working with that used to pay me that way. I ended up taking the step of ringing a few editors that I had good relationships with and really wanted to keep working for, and saying to them: “I love working with you but your payment cycle is killing me. What do I need to do to get my payment terms shifted from 90 days to 30 or less?”

    The other option is to start ringing the accounts payable departments of the networks on a regular basis and asking them when you are going to get paid.

    Hi Jayne,

    Great advice thanks for posting. This is the same situation I find myself in. I have a large client who refuses to pay within my 14 day terms.

    So I have asked to have a meeting with them next week and I plan to try to change them over to COD. When we finish a job, they will need to pay before the final files are released to them.

    My fear is two fold:
    1. I will need to compose a “script” but I’m not sure what to say.
    2. When I tell them that we need to change the payment terms, what if they say “sorry, no can do”. What then?

    They already know full well that their “well we pay 30 days” terms doesn’t work well for me, and I constantly email them about overdue invoices. They just ignore my pleads and pay when they want.

    I know that I need to PICK UP THE PHONE rather than email. But because I don’t have a script, I’m not sure how to deal with the situation properly.

    #1008173
    Chris Bates
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    Hey,

    My very first client for a web design was a business who sounds very much like your client. Their invoices was 6 weeks overdue and they only payed part of it even then!

    I learnt through this one, I was stupid and didn’t put together an agreement. Their website was up, finished, and awaiting their payment. After two ignored invoices, I emailed them and said “If I have not received payment before COB Friday, your website will be deactivated and removed.” I got a phone call 2 hours later saying they’ve sent the money through.

    Play hard ball with them, how many times I’ve been told be people “oh most businesses pay at end of the month”, well sorry but not by my rules. They requested a service from YOU, so they must adhere to your rules.

    Really ask yourself if this client is worth the hassle of chasing bad debts all the time. If you can remove the fear of losing them as a client, you’ll go into the discussion a lot more confident. When you DO go to them, don’t pose it to them as though you’re giving them a choice.

    Then it is quite simply “I am changing your account terms to be COD, you will not receive your product/service until payment in full has been made.”

    If they kick up a fuss and say how come, well you answered that in your own post. Stick to your guns, don’t make exceptions for a bad client. They either except the terms of trade, or they find someone else.

    Good luck!

    Cheers,
    Chris

    #1008175
    [Former] FS Concierge
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    Hi Designmill – thanks for the nice feedback!
    Hi Chris – you make some great points!

    If you are working for a large corporate where cheque or EFT payments are automated, things may just seriously only happen on a monthly cycle, and they are not going to re-invent their system because one sole trader is demanding fortnightly payment. Maybe you should start by asking them what their accounts payable system is. For example, is there a certain date in the month you need to have your invoices in by in order to make the next cheque run?

    Another option is to put your prices up, and then offer them a 5% discount for payment within 14 days.

    Good luck with your meeting next week! We’ll be interested to hear how you get on!

    Have a great day,
    Jayne

    #1008177
    Easy Workplace Safety
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    Great comments.

    I have been in business for several years and late payments seem to be the bain of many businesses. My process used to be that I would meet with the business owner to discuss what OHS Management they required. I would then provide a quote with payment terms which the client agreed to. Depending on the amount of the invoice, I would take a percentage upfront then a progress payment followed by the remainder at the completion of the project.

    I learnt the hard way that some people just dont want to pay. One client was opening his business and required my services to enable him to open his business. As the account was for a substantial amount, we agreed to a monthly repayment plan which went well for one month. He paid a deposit then made one further payment then he disappeared. Communication was completely cut off.

    To cut a long story short and 5 months later, I am pursuing him for the outstanding amount as his business is now making tens of thousands of dollars every week – he could pay me with his small change. Puts a bad taste in your mouth and I have learned a valuable life skill!

    My payment terms are 100% upfront and so far, no objections. I provide references to new clients if they object to the upfront payment. Once they speak to my other clients, there is never a problem.

    Good luck.

    #1008179
    thevisionary
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    Up-front payments don’t work for us.

    My problem is that the very small client base I deal with (television stations for TV News) are never in the position where payment can be made up front. They need you and need you NOW. No time for quoting, you work on a half-day/full-day rate that is the industry standard.

    The other issue is that – especially at the moment – the work is so sporadic. I have not had a job for three weeks at the moment. But when it happens, they want you to move NOW. It’s the nature of news.

    I have to be available, be experienced, have the gear, have the contacts, be available for a job that pays very good money. When it happens. But you have to wait months to get paid.

    I guess the moral to my story is that – in my business, anyway – if you want the good money, you are going have to be prepared to wait to be paid for it.

    #1008181
    Adam Randall
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    We are unfortunately in the midst of now having to take a matter to court.

    30 invoices spanning 6 months not paid.
    We send reminder after reminder, phone call after phone call.

    Finally visited their site and sat down with them and went through each and every invoice to explain what each one is for – (Note here that their lack of payment ends up costing you money when you have to explain what it was for because it happened so far in the past)

    Anyway back to the story, they agree to make payment by the end of the week (@12K) and I walk out the door happy and not having to stress about cashflow.

    Over a week passes and nothing, no emails returned, no phone calls returned.

    So finally after exhausting all other avenues, I send a final notice from the court.

    Well talk about response “how dare you do this” “we are extremely disappointed with you” “we agreed to pay this all but were waiting on a cheque” “We are now going to go through your invoices in detail and will not be paying any charges we think are irrelevant.

    Did not hear anything for 21 days and then on the last day got an email that they will be not paying the amount because they are disputing things although I was left wondering what they were actually disputing.

    I think they misunderstood because they were even more annoyed when I filed a notice of claim. I think she thought by leaving it to the last day and disputing it would somehow stop the clock.

    Anyway I tried negotiating and I remained conciliatory throughout being that my aim is to get paid rather than stir up a hornets nest.

    I made an offer of $1500 off which is the amount that is still owed although was not on the claim form.

    She sent an email back saying only “I will give you 8K, take it or leave it”

    Its pointless in this case to let the emotions take over but sometimes I find it hard to maintain composure.

    The thing that really gets me is that if it goes to court, the reality is, its not who is right or wrong, its who tells the best story on the day and because of that I feel like there is a complete lack of control which in turn causes extreme stress and pressure.

    #1008183
    thevisionary
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    I guess we are fortunate because our problems aren’t caused by lack of cash flow with the client…it is because they are large companies and just take their time in paying.

    Doesn’t help us, though. Our bank is now telling us to fix up the accounts or else.

    #1008216
    designmill
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    Oh Adam… I feel for you. I cannot imagine the time, energy and stress you would be putting into this!

    Since my last post I have called the accounts department of the company and explained that as a sole trader I simply cannot afford to give them credit of more than 14 days.

    I also mentioned that if the invoices were not paid within the agreed payment terms they would be changed to cash on delivery. Which the girl agreed to speak to the boss about.

    I then followed up that conversation with an email this morning repeating everything we spoke about, cc’d the boss and again said that if clients cannot pay within the payment terms they will be changed to cash on delivery.

    Now I need to plan for worst case scenario and:
    1. set up the online payment facility with my bank so that I can do COD over the net – has anybody used it before? It seems good.
    2. come to terms with the possibility that I may lose the client altogether.

    Adam, I would love to know how you go with your situation.
    Did you get advice on how to take them to court through your solicitor or a debt recovery agency?

    #1008217
    Adam Randall
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    No worries, I will keep it updated.

    I did not get advice doing the final notice or the notice of claim, in SA anyway you can just fill them out from the court web site.

    Once she offered the 8K and before I replied, I thought OK, time to check in with someone who knows what they are doing in this area.

    I spoke with a solicitor that works on this stuff and she basically said that its not a really big deal and is quite straight forward which gave me some comfort.

    It is the unknown though that gets to me.

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