Business Owners- Tell me your Invoices/Payment Issues-Strategies for your vendors/suppliers to Pay on Time

  • Posted by a hidden member.
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    Jan 26, 2014 9:33 PM GMT
    Hey Guys- I am wondering if any other small business owner this past year or this coming year is having difficulty in your clients paying their invoices for work you have done for them. I am finding in these economic times, clients are holding more to their cash, and violating the terms of the contract agreement. I hate chasing clients for past due payments, but that is the nature of the business. Since I deal with very small start-up companies sometimes only the CEO can sign the check but is traveling, but it is impacting my finances. So much so that I had obligations and have hit with penalties by other vendors/suppliers for me being late. Luckily, I was able to explain this past month and get those charges overturned. However, because of this I am no longer accepting checks for payment. Now is Direct Deposit or Wire Transfer.

    My business is consulting for Pharma/Biotech in device or clinical trials mainly in the conduct, and analysis of a clinical study and ultimately submission of the data to a regulatory body.

    Some of the strategies I have instituted:

    (1) No more checks will be accepted for work performed and this will be set in executed language of the contract as it is noted the terms of payment. I also created a Memo Policy in PDF format from my business that is given to the client when discussions are being formalized in regards to their project in the contract.

    (2) A penalty of 3% will be incurred on an invoice for every direct deposit or wire transfer that is not on time.

    (3) I opened a small business credit card to be linked to my small business checking account in the event that a payment is late, this credit card will be drawn to make payment so that my account does not get hit with insufficient funds fee.

    (4) I am thinking also exploring on a line of credit - but will see. I have been in business for 5 years so I have not had to execute this last part.

    What other strategies have you guys used? In view that I am walking this tight rope with some of my clients- you can not be hostile since I will loose the business, but at the same time they need to understand for them to honor their commitments since I have already completed their project and expected to get paid.
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    Jan 26, 2014 10:01 PM GMT
    What are your current payment terms? Some/most businesses require x% of the invoice upfront, and net 30 for existing customers. New customers have shorter due dates.

    What are your profit margins like? If you have room to play, you can offer a small discount if they pay off the invoice before the due date.
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    Jan 26, 2014 10:21 PM GMT
    Depends for the bigger organizations, I can usually specify "Invoice payment Upon Receipt"

    For the smaller start-up < less than 10 employees since they do not have a product or device on market and surviving through capital investment. I negotiate Net 15 days. Some of these have pushed for 30 or 45 days, but I say that I am not interested in doing business with them - that usually forces them to 15 days.

    Unfortunately, my cash flow right now is tight, so I can not give any discounts.
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    Jan 26, 2014 10:47 PM GMT
    This seems like an unlikely forum for this particular rant.

    However, the basic form of my business is similar to yours. I have noticed that this late-payment problem is increasing more and more over the last few years. It seems as if most large companies simply won't pay an invoice in less than 90 days any more. And government agencies are even worse - you're lucky if they pay within a year. And of course, there are always a few jobs that you get completely stiffed on. As much as I've learned to avoid those, they still happen from time to time.

    I used to operate on a line of credit, but that became too risky. At that time, my whole business was in two or three contracts for government agencies. When their payments started coming in 18 or 24 months late, the bank wouldn't put up with it any more. I had to diversify and work on smaller contracts for more different customers. That way, there are much better odds that somebody will pay in a given month.

    For most contracts, I started requiring a 50% down-payment, with the balance due on completion. Or for larger jobs, there might be a payment due at each project milestone, or each quarter. It spreads out the risk, and once you receive that first check, you know for sure that the person you are dealing with is really authorized to sign the contract.

    If the company address is a PO box in Florida and they're using gmail, it's advance payment only. icon_rolleyes.gif

    If you don't have one, set up a merchant account with your bank that allows you to take payment by credit card. A lot of technical people within the large companies can make immediate payment of a few thousand on their company credit cards when it would take months to work a PO through their procurement department. Meanwhile, the desperate start-ups can rack up more debt, and it's not your problem. This is sometimes even easier if your contract is broken up into two or more payments, as described above. The downside is that the bank takes 5%.

    I used to tack on a $25 "late fee" for accounts that I had to rebill. Just like small businesses around town used to do. But this was completely out of scale with the late fees that banks were charging me because some other bozo wasn't paying on time. Set up a sliding scale of late fees, plus whatever the maximum legal interest rate is in your state and get aggressive about collecting it. Set up an agreement with a local collection agency to handle any accounts over 90 or 120 days past due. Put all this in the "boilerplate" section of your contract, including a statement that the customer is responsible for the "costs of collection." Have the collection agency and/or your lawyer review the language.

    Sure, a $200 late fee won't mean much to big pharma. I'm sure that I could double my entire bill to certain customers coughRochecoughExxoncough and they wouldn't even blink. But some accountant down in the bowels will get stuck when the amount owed is more than the PO amount and it might even spur them to start paying on time.

    Ideally, I'd like to shove all this stuff off on a bookkeeper or administrative assistant. That way I can always be the helpful friendly service provider and the bookkeeper can be the mean angry bill collector. Gee, if only customers would pay on time, so that I could credibly maintain a payroll. icon_rolleyes.gif
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    Jan 26, 2014 10:50 PM GMT
    What's the cost of sending a debt to a collections agency? Is it generally worth the time/money/effort?
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    Jan 26, 2014 11:00 PM GMT
    xrichx saidWhat's the cost of sending a debt to a collections agency? Is it generally worth the time/money/effort?


    They take their payment out of what they can collect. You might not get much, in the end, but it's better than nothing. The boilerplate in my contracts says that the debtor is responsible for paying all collections fees.

    Anyway, the threat of having this in place, in writing is probably more useful than actually going through with it.
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    Jan 26, 2014 11:02 PM GMT
    mindgarden saidThis seems like an unlikely forum for this particular rant.

    However, the basic form of my business is similar to yours. I have noticed that this late-payment problem is increasing more and more over the last few years. It seems as if most large companies simply won't pay an invoice in less than 90 days any more. And government agencies are even worse - you're lucky if they pay within a year. And of course, there are always a few jobs that you get completely stiffed on. As much as I've learned to avoid those, they still happen from time to time.

    I used to operate on a line of credit, but that became too risky. At that time, my whole business was in two or three contracts for government agencies. When their payments started coming in 18 or 24 months late, the bank wouldn't put up with it any more. I had to diversify and work on smaller contracts for more different customers. That way, there are much better odds that somebody will pay in a given month.

    For most contracts, I started requiring a 50% down-payment, with the balance due on completion. Or for larger jobs, there might be a payment due at each project milestone, or each quarter. It spreads out the risk, and once you receive that first check, you know for sure that the person you are dealing with is really authorized to sign the contract.

    Thanks for the information Mindgarden, I was trying to see if there was a business forum in RJ and placed it there, but did not find one. So apologies. Maybe the RJ Admin- can add another forum for Business. I am trying to stay away from a bookkeeper I do all the accounting myself via AccountsEdge and hired a CPA that knows the system and helps me every quarter and then another CPA expert with CA tax law, etc. which submits my taxes.

    If the company address is a PO box in Florida and they're using gmail, it's advance payment only. icon_rolleyes.gif

    If you don't have one, set up a merchant account with your bank that allows you to take payment by credit card. A lot of technical people within the large companies can make immediate payment of a few thousand on their company credit cards when it would take months to work a PO through their procurement department. Meanwhile, the desperate start-ups can rack up more debt, and it's not your problem. This is sometimes even easier if your contract is broken up into two or more payments, as described above. The downside is that the bank takes 5%.

    I used to tack on a $25 "late fee" for accounts that I had to rebill. Just like small businesses around town used to do. But this was completely out of scale with the late fees that banks were charging me because some other bozo wasn't paying on time. Set up a sliding scale of late fees, plus whatever the maximum legal interest rate is in your state and get aggressive about collecting it. Set up an agreement with a local collection agency to handle any accounts over 90 or 120 days past due. Put all this in the "boilerplate" section of your contract, including a statement that the customer is responsible for the "costs of collection." Have the collection agency and/or your lawyer review the language.

    Sure, a $200 late fee won't mean much to big pharma. I'm sure that I could double my entire bill to certain customers coughRochecoughExxoncough and they wouldn't even blink. But some accountant down in the bowels will get stuck when the amount owed is more than the PO amount and it might even spur them to start paying on time.

    Ideally, I'd like to shove all this stuff off on a bookkeeper or administrative assistant. That way I can always be the helpful friendly service provider and the bookkeeper can be the mean angry bill collector. Gee, if only customers would pay on time, so that I could credibly maintain a payroll. icon_rolleyes.gif
  • Posted by a hidden member.
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    Jan 26, 2014 11:07 PM GMT
    How do you like AccountsEdge? Have you tried other accounting software like QuickBooks?
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    Jan 26, 2014 11:27 PM GMT
    So far its been great. I have a Mac and no problems. I heard a lot of problems with QuickBooks when I did my research starting the business 4 years ago, but some people have had no problems and love QuickBooks.

    I also love that AccountEdge - they can send the software free of charge to your licensed CPA at no charge, and then I just send them my files. He can open, review and advise of any issues. I am not sure if QuickBooks does that as well.
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    Jan 26, 2014 11:28 PM GMT
    BTW: I'm not kidding about the PO Boxes in Florida (or New Jersey). But last week, I googled the normal-sounding address of one company that I'm trying to collect from, and it turns out to be a room in a Holiday Inn. Same address that they registered with the state. icon_rolleyes.gif
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    Jan 26, 2014 11:37 PM GMT
    Oh Wow, that is crazy.

    I have a client now that wants me at his offices at 8:30 a.m. sharp, will not allow me in his building prior to that. Once I arrive since he is in Los Angeles, I have to send him an email that I am on his premises...then followed by a phone call to " Discuss what is needed for the day" although we discussed already want is needed in the project.....pure micro management and control...this usually follows through out the day. An Absolutely, I can NOT work from home for this clienticon_rolleyes.gif, so hoping this contract ends soon looking for something else at the moment.
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    Jan 26, 2014 11:38 PM GMT
    mindgarden saidBTW: I'm not kidding about the PO Boxes in Florida (or New Jersey). But last week, I googled the normal-sounding address of one company that I'm trying to collect from, and it turns out to be a room in a Holiday Inn. Same address that they registered with the state. icon_rolleyes.gif
    LOL. Thank goodness for Google Street View.
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    Jan 27, 2014 1:28 AM GMT
    uombroca saidDepends for the bigger organizations, I can usually specify "Invoice payment Upon Receipt"

    For the smaller start-up < less than 10 employees since they do not have a product or device on market and surviving through capital investment. I negotiate Net 15 days. Some of these have pushed for 30 or 45 days, but I say that I am not interested in doing business with them - that usually forces them to 15 days.

    Unfortunately, my cash flow right now is tight, so I can not give any discounts.

    Therein lies your problem. You cannot collect on time from people who are not willing to pay on time, regardless of what you can coerce them into agreeing to.

    It's a bitter pill to swallow, but sometimes you have to turn away unreliable customers.
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    Jan 27, 2014 3:49 AM GMT
    Your right and I am making those decisions now.