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One thing that irks me about dealing with big businesses, that the post touches on, is payment terms. If I buy an item, I pay for it immediately (or if it’s la

One thing that irks me about dealing with big businesses, that the post touches on, is payment terms. If I buy an item, I pay for it immediately (or if it’s large enough, a creditor pays for me). Big companies pay with IOUs that say they’ll give you cash later, say 30-90 days from now or after criterion X is fulfilled. They do not care if you’re a small company with poor liquidity. I think it’s absolutely abusive behavior

jraby3 4y ago
That’s more specific to the food business. I run an advertising company and we always take payment in advance and work with several large (publicly traded) companies.
- georgeburdell 4y ago
  I have experience in the semiconductor industry and it operates similarly to what the post described
- hgsgm 4y ago
  Amazon's retail profit comes from investing the money they postpone paying suppliers until 30+days after the customer pays Amazon.
- convolvatron 4y ago
  more specific to the physical goods business. if we establish a relationship where I'm regularly ordering merchandise from you - invariably we set up a regular billing cycle w/ a 30 day payment-from-invoice.
- imroot 4y ago
  I know of a few retailers that operate on Net 270 terms for their smaller vendors (Looking at you, Home Depot) and Walmart would tell us that they would reset the 'calendar' if we would call and ask for the status of a payment. This was 2003-2006ish, for the record.
  - p_j_w 4y ago
    >Walmart would tell us that they would reset the 'calendar' if we would call and ask for the status of a payment. How the hell is this even legal?
    - kortilla 4y ago
      By agreeing to it when you go into contract with them.
    - deleted 4y ago
      [deleted]
  - chasd00 4y ago
    A tangent but what were you selling if i may ask? I'm developing a little bluetooth device that lots of people in a large hobby would find interesting and was fantasizing about pitching the prototype to a reseller.
- hgsgm 4y ago
  Amazon's retail profit comes from investor the money they postpone paying suppoiers until 30+days after the customer pays Amazon.
- ThunderSizzle 4y ago
  I don't believe it's "the food business" as much as "suppliers" in general. I know non-food industries that operate this way, and it's common enough that accounting classes I've taken covered some of the basics of these. Advertising or informational industries (e.g. non-tangible goods industries) seem to operate differently, as you've said.
  - memco 4y ago
    Maybe not even suppliers and just organizations. I once offered tutoring services to someone who was working with the VA to get their degree. Since it was a subject outside of their normal scope and I was not a contractor with the VA I had to fill out paperwork and even then it took a year to get approved and paid for the services. Thankfully I wasn’t doing this for a living but as a favor and the person I was working with was very persistent in following up with his have supervisors otherwise I would given up long before.
  - jraby3 4y ago
    I primarily do direct mail which is tangible. But the margins are thin and postage is such a big part of our cost that if a customer was going to skip payment we’d need 10 new orders to cover the loss. So it makes sense to never extend credit. I do think it’s very industry specific and food / retail as one of the worst.
    - ThunderSizzle 4y ago
      What is direct mail? If that's rhe equivalent of UPS/USPS, then that's a service, not a tangible good. A tangible good would be something more like a part used in a manufacturing process, which is where the commonality to food comes into play - food tends to have many ingredients that come together into a final product - but anything following this tangible good line, from my experience, will follow these terms. The reason kind of seems to be to give more flexibility to the supply chain. If everyone required payment upfront to get items to shelves or lots for customers to buy, then the risk goes more fully on the last link in the chain. It appears this pattern began to spread the risk to the entire chain.
- joshvm 4y ago
  Net 30 is how a lot of Switzerland operates. You can buy all kinds of things - as a consumer - on a "pay later" basis. Flights, groceries, appliances, insurance, you name it. It's a level of trust that's pretty unusual in other countries, though you can bet they'll keep chasing you (and there is a national debt register). QR codes have replaced paying in slips, but they'll send you the code in a letter/PDF and you have a month to pay. But from the industry side. At the big corp level this is all handled by some CRM/Oracle/IBM/SAP system and once things have been approved by whatever chain of people need to sign off, the payments are automatically sent out. The flip side is that if someone hasn't approved something, or they're waiting for paperwork unbeknownst to you, you have to wait until they do another run. So you have to nag them. The people who bought the thing from you are probably not the people who will actually pay you.
brookst 4y ago
And yet, if you’re a big company, transactions are expensive. If small companies need frequent payments and won’t float AP, why would you buy from them? Would you rent an apartment that insisted on daily payments? (Ok, bad analogy, but you get the idea). I don’t have a good answer, but this isn’t a one-sided thing where the big guys are taking advantage of small companies. This is also small companies agreeing to operate the way big ones do in order to get a foot in the door.
- lesuorac 4y ago
  Where have you been renting that didn't insist on payment up front? Everywhere I've seen you've payed that months rent by the ~5th of that month or they come after you for interest.
  - bombcar 4y ago
    It can vary by landlord and jurisdiction. Some places you’re technically paying for the month you just finished, others you’re paying for the month upcoming. It only really differs on the accounting after the first month.
  - brookst 4y ago
    Almost like I acknowledged the specific analogy wasn’t great because rent is typically pre-paid. Fine, let’s talk post paid. Electric bills. How you would you feel about an electric company that sent you an invoice and wanted to be paid daily? Yes, yes, the analogy is also imperfect because consumer electric companies can do auto-pay and walmart generally does not for small vendors. But please try to see the point even with a less than totally perfect analogy to consumer life.
    - iamacyborg 4y ago
      > How you would you feel about an electric company that sent you an invoice and wanted to be paid daily This would be trivial via Direct Debit.
    - cycomanic 4y ago
CamelCaseName 4y ago
Yup, and not just that, but they can arbitrarily decide to not pay you until you either give a steep discount or give up pursuing it.
- sneak 4y ago
  You can arbitrarily decide not to ship until prepayment is received.
  - JimtheCoder 4y ago
    But then they choose someone else to supply. If you have enough brand recognition where they must have your product specifically, this usually means you are big enough that the payment terms aren't that big of a deal
jjeaff 4y ago
I remember in a corporate finance class in college, we did a lot of calculations comparing prepayment to net 30, net 90 terms, etc. The game is to maximize cash flow, though in the end, it doesn't make a lot of difference except in very thin margin businesses. But the general wisdom is to always try to take maximum advantage. I always felt that it is a silly strategy considering that it strains your suppliers, provides little financial benefit, and big corporations blow so much money on so many other things that could easily be addressed before worrying about setting up net 30 payments.
- Waterluvian 4y ago
  It sounds like that classic “focus on the things that can be measured easily” business finance attitude that causes things like “don’t kill your customers” to be missed.
  - dylan604 4y ago
    Too bad "don't kill your suppliers" isn't a thing.
  - meowmeowmoo 4y ago
    The customers of distributors are retailers. They’re not killing the retailer. They’d be killing the supplier in this scenario.
- Xylakant 4y ago
  Groceries is a high capital very low margin business because you need to have all of the things in store before you can sell them, some of them for extended periods. Essentially this reduces the amount of capital you need to upfront and shoves it down to the next in line. The alternative would be to take a loan.
- WastingMyTime89 4y ago
  It’s basically a free short term loan from your suppliers who are eating the inflation instead of you. It does strain your suppliers but if your business doesn’t really need them and you can force them to accept it, why not? As a supplier, payment delay is basically a cost you have to bear to deal with large distributors. It’s a trade off between somewhat predictable volumes and cash flow availability. I would never do a one off with a large distributor however. You are going to get swindled as this article nicely illustrates. Large distributors buyers have years of training exploiting people in your situation.
treeman79 4y ago
There are businesses that act as middle man for this. They’ll pay you say 97% of invoice. They’ll collect as they can
- danhodgins 4y ago
  Exactly, one type is called BNPL (buy now pay later).
- meowmeowmoo 4y ago
  They call this factoring in the trucking industry.
legitster 4y ago
> They do not care if you’re a small company with poor liquidity. This is a feature, not a bug. If you are in an inventory-rich industry, you do not want to deal with a supplier that has no working capital. Goods first - money later sucks if you are a small startup. But it's much easier to work with inventory and figure out the money later than vice-versa. Toyota does not want to stop the production line because their order of ball-bearings showed up late and now they have to start a new purchase cycle.
- monocasa 4y ago
  It's the other way around I've found for a lot of the automotive industry. Most of the big automotive companies try to keep their suppliers a hop and a skip away from not being able to keep the lights on in borderline debt bondage to the auto manufacturer. Puts them in a much better negotiating position and makes sure that the profits go to the auto manufacturer rather than their suppliers. That was half the reason for the chip shortage. Auto manufacturers collectively (and incorrectly) forecast a decline in demand in cars during the pandemic, cancelled a bunch of orders for chips and a bunch of the suppliers went under. Then started offering 10x-20x for replacement chips from their few remaining suppliers (that pretty much all went to buying out wafer slots that would have been non-automotive chips) to keep a $35k car not being able to be shipped for the lack of a $0.30 part.
detritus 4y ago
In my experience, the larger the organisation, the longer the presumed payment terms. I've learnt to demand payment in advance, otherwise I'll get caught up pos-hoc in the labyrinthine and entirely cloistered whims of accounts departments who seem to think they're morally-placed to dictate whatever terms they wish. Worst in my experience was Unilever, who simply assumed they could pay in 90 days, which ..er.. rankled. Thankfully the job I did was directly for someone quite high up, so a week's worth of pointed emails and calls somewhat hastened payment.
- chasd00 4y ago
  i've read comments like this before on hackernews. Are the payment terms not on the contract signed? It seems like something you'd really want to understand before starting a project...
  - ryoshu 4y ago
    They generally are, but if you say net 30 and set a % penalty for not paying in net 30 (common), when a multi-billion dollar corporation decides to do net 90 and won't pay the penalty, what are you going to do as a freelancer? Sue them? The amount of money you spend on legal fees would likely be multiples of the penalty fees. And it would delay payment further. Big corporations rely on this power imbalance.
    - bombcar 4y ago
      I wonder how you could word the contract such that failure to pay on time would be onerous enough that the big company would actually move on it. Something like penalties + legal fees + treble damages or something.
      - pkilgore 4y ago
        Ask a lawyer!
        4y ago
cameronh90 4y ago
One thing about credit accounts is that it allows the people placing the order to be different to the ones involved in settling the account, and for the latter to be handled asynchronously rather than holding up the order. Imagine I need some stuff now (or on the next truck), I can place the order and it will be immediately loaded on the truck. Then separately, they'll send an invoice to the accounting department who will settle it over a week or two, which may involve moving money around, foreign exchange, etc.
yieldcrv 4y ago
I've seen this even worse outside of the US, and just how ... poor trade routes, trust and "markets" are. It really makes me appreciate the US more. But I am still dismayed that I'm all caught up on the state of commerce and that its not even more streamlined and sophisticated.
analog31 4y ago
It's worse than that because they will drag out payment after the term has passed. My first job out of school was for a mom-and-pop manufacturing company. I got an inquiry one day from a very well known company, and mentioned it to the boss. He gave me a long lecture about why we didn't work with that industry. They were notorious for stringing their suppliers along and holding them in a sort of debt bondage. I remember responding with a FAX (yeah, that's how it was done) explaining our terms: Pay in advance. The boss made sure that the business was never beholden to a single large customer. We also had a draconian, hair-trigger, credit hold process. I remember overhearing the scheduler / receptionist telling a customer: "You are on credit hold right now, we can't schedule your next production run."
- Ekaros 4y ago
  That to me sounds like we might lose revenue, but at least we are unlikely to lose money.
  - analog31 4y ago
    It becomes a problem if you borrow to pay for tooling & plant in anticipation of getting paid for product. You might lose your shirt.
  - fbdab103 4y ago
    Cash flow is the be-all end-all. If you cannot make rent, you are done. Big business does not care. Working for a big business, I have encountered other small companies who do not want to deal with us - getting $MEGACORP to pay their bills on time is a foreign concept.
- monocasa 4y ago
  > gave me a long lecture about why we didn't work with that industry. Automotive? That has big automotive energy.
- grumple 4y ago
  I think this is needed tbh. My fortune 10 company regularly pays our bills after the pay period - like 60 days late on a net 30. And then I, a technical person that just wants the damn AWS bill paid so I stop getting emailed about it, have to chase down the people responsible internally, even though they get the same billing emails. Because for some reason they didn't like the old way of setting up auto pay. Oh. And they will send literal paper checks to pay some bills... to closed offices since everybody works from home now. The accounts payable department wastes more time than they save.
daanlo 4y ago
In the case of food retailers you also need to consider the time on shelf. To take the coffee example. If any average shop buys 4 cases of coffee (24 bags) and on average sells 2 bags per week, then the last bags will sell after 12 weeks. On avg. it will be 6 weeks (42 days). Product will also spend 1-2 days in transit and might not be unpacked on the floor until 1-2 working days later (so maybe 2-3 days). We can assume payments take 1 day to process. So 46-48 days in total. So 50 day payment terms means they are more or less cash flow neutral. Numbers are made up, but roughly align with my experience of selling other durable food to grocery retailers.
asah 4y ago
In the food business net-terms pain starts from the retailer and work backwards towards the manufacturer. OTOH, it's very difficult to raise money as a retailer or distributor but 1000x easier (still hard) as a brand.
reillyse 4y ago
Yea but as a food producer (also a coffee roaster) I also get payment terms from my suppliers. And it all kind of makes sense when you think we are all adding value and margin. The “loan” everyone is giving to the people later in the chain is the cost of production rather than the final sale price. So for a 100k order it might cost 50k to produce in cost of goods. That 50k to the suppliers is probably 35k etc.
deleted 4y ago
[deleted]
richbell 4y ago
It absolutely is abusive behaviour, and it's unfortunately pervasive across industries. Bethesda is infamous for withholding payment to smaller companies to force an acquisition of IP. And (not to get political) big-shot celebrities like Donald Trump or online influences do it too. Often it's even worse than "we'll pay you later", it's "give us a steep discount and we'll pay you back in exposure/future opportunities to make a lot more."
ars 4y ago
I remember reading that one reason suppliers are willing to work with WalMart despite the low prices they pay is that WalMart doesn't play these games with delayed payments - they pay exactly when they say they will. They also have: https://walmart.c2fo.com/walmart https://walmart.c2fo.com/walmart
tapatio 4y ago
90 day "credit" terms are typical across many industries. Yes, it sucks, but also, it's a reason to not over extend yourself while trying to get to the next level.
gamblor956 4y ago
My ($x billion+-sized) employer pays vendors within 2 business days of the invoice being submitted through the internal payment process, regardless of whether the payment terms allow for us to do net-30 or net-60. It doesn't meaningfully affect our cash flow to delay payment, but it makes a huge difference for our vendors. As you've noted, a delayed payment can literally be the kiss of death for a small company.
Gibbon1 4y ago
After working at a small engineering firm whose owners were pretty open about the finances. Every time I read or hear someone ranting about how people with small time incomes and few assets have to 'pay their bills' I think back to the owners of that company bitching about this or that fortune 500 customer just up and not paying for stuff for months after it was delivered.
indymike 4y ago
In the mid 00's I had a digital agency and we hosted sites for a few fairly large hotel chains. One day, I got an email from procurement at one of them that said, "we're holding payment on all outstanding payables until next month." The hosting billing system shut their site down at 12:00pm the day after payment was due and dutifully redirected to the "pay your bill online page". Ten minutes later I get a frantic call from procurement, begging me to put the site up. I fumbled with the billing system, and finally told her, I think the only way to fix it is make a payment... which she did. $6,200 on credit card. The customer never missed a payment after that.

jraby3 4y ago

That’s more specific to the food business. I run an advertising company and we always take payment in advance and work with several large (publicly traded) companies.

georgeburdell 4y ago
I have experience in the semiconductor industry and it operates similarly to what the post described
hgsgm 4y ago
Amazon's retail profit comes from investing the money they postpone paying suppliers until 30+days after the customer pays Amazon.
convolvatron 4y ago
more specific to the physical goods business. if we establish a relationship where I'm regularly ordering merchandise from you - invariably we set up a regular billing cycle w/ a 30 day payment-from-invoice.
imroot 4y ago
I know of a few retailers that operate on Net 270 terms for their smaller vendors (Looking at you, Home Depot) and Walmart would tell us that they would reset the 'calendar' if we would call and ask for the status of a payment. This was 2003-2006ish, for the record.
- p_j_w 4y ago
  >Walmart would tell us that they would reset the 'calendar' if we would call and ask for the status of a payment. How the hell is this even legal?
  - kortilla 4y ago
    By agreeing to it when you go into contract with them.
  - deleted 4y ago
    [deleted]
- chasd00 4y ago
  A tangent but what were you selling if i may ask? I'm developing a little bluetooth device that lots of people in a large hobby would find interesting and was fantasizing about pitching the prototype to a reseller.
hgsgm 4y ago
Amazon's retail profit comes from investor the money they postpone paying suppoiers until 30+days after the customer pays Amazon.
ThunderSizzle 4y ago
I don't believe it's "the food business" as much as "suppliers" in general. I know non-food industries that operate this way, and it's common enough that accounting classes I've taken covered some of the basics of these. Advertising or informational industries (e.g. non-tangible goods industries) seem to operate differently, as you've said.
- memco 4y ago
  Maybe not even suppliers and just organizations. I once offered tutoring services to someone who was working with the VA to get their degree. Since it was a subject outside of their normal scope and I was not a contractor with the VA I had to fill out paperwork and even then it took a year to get approved and paid for the services. Thankfully I wasn’t doing this for a living but as a favor and the person I was working with was very persistent in following up with his have supervisors otherwise I would given up long before.
- jraby3 4y ago
  I primarily do direct mail which is tangible. But the margins are thin and postage is such a big part of our cost that if a customer was going to skip payment we’d need 10 new orders to cover the loss. So it makes sense to never extend credit. I do think it’s very industry specific and food / retail as one of the worst.
  - ThunderSizzle 4y ago
    What is direct mail? If that's rhe equivalent of UPS/USPS, then that's a service, not a tangible good. A tangible good would be something more like a part used in a manufacturing process, which is where the commonality to food comes into play - food tends to have many ingredients that come together into a final product - but anything following this tangible good line, from my experience, will follow these terms. The reason kind of seems to be to give more flexibility to the supply chain. If everyone required payment upfront to get items to shelves or lots for customers to buy, then the risk goes more fully on the last link in the chain. It appears this pattern began to spread the risk to the entire chain.
joshvm 4y ago
Net 30 is how a lot of Switzerland operates. You can buy all kinds of things - as a consumer - on a "pay later" basis. Flights, groceries, appliances, insurance, you name it. It's a level of trust that's pretty unusual in other countries, though you can bet they'll keep chasing you (and there is a national debt register). QR codes have replaced paying in slips, but they'll send you the code in a letter/PDF and you have a month to pay. But from the industry side. At the big corp level this is all handled by some CRM/Oracle/IBM/SAP system and once things have been approved by whatever chain of people need to sign off, the payments are automatically sent out. The flip side is that if someone hasn't approved something, or they're waiting for paperwork unbeknownst to you, you have to wait until they do another run. So you have to nag them. The people who bought the thing from you are probably not the people who will actually pay you.

brookst 4y ago

And yet, if you’re a big company, transactions are expensive. If small companies need frequent payments and won’t float AP, why would you buy from them? Would you rent an apartment that insisted on daily payments? (Ok, bad analogy, but you get the idea). I don’t have a good answer, but this isn’t a one-sided thing where the big guys are taking advantage of small companies. This is also small companies agreeing to operate the way big ones do in order to get a foot in the door.

lesuorac 4y ago
Where have you been renting that didn't insist on payment up front? Everywhere I've seen you've payed that months rent by the ~5th of that month or they come after you for interest.
- bombcar 4y ago
  It can vary by landlord and jurisdiction. Some places you’re technically paying for the month you just finished, others you’re paying for the month upcoming. It only really differs on the accounting after the first month.
- brookst 4y ago
  Almost like I acknowledged the specific analogy wasn’t great because rent is typically pre-paid. Fine, let’s talk post paid. Electric bills. How you would you feel about an electric company that sent you an invoice and wanted to be paid daily? Yes, yes, the analogy is also imperfect because consumer electric companies can do auto-pay and walmart generally does not for small vendors. But please try to see the point even with a less than totally perfect analogy to consumer life.
  - iamacyborg 4y ago
    > How you would you feel about an electric company that sent you an invoice and wanted to be paid daily This would be trivial via Direct Debit.
  - cycomanic 4y ago

CamelCaseName 4y ago

Yup, and not just that, but they can arbitrarily decide to not pay you until you either give a steep discount or give up pursuing it.

sneak 4y ago
You can arbitrarily decide not to ship until prepayment is received.
- JimtheCoder 4y ago
  But then they choose someone else to supply. If you have enough brand recognition where they must have your product specifically, this usually means you are big enough that the payment terms aren't that big of a deal

jjeaff 4y ago

I remember in a corporate finance class in college, we did a lot of calculations comparing prepayment to net 30, net 90 terms, etc. The game is to maximize cash flow, though in the end, it doesn't make a lot of difference except in very thin margin businesses. But the general wisdom is to always try to take maximum advantage. I always felt that it is a silly strategy considering that it strains your suppliers, provides little financial benefit, and big corporations blow so much money on so many other things that could easily be addressed before worrying about setting up net 30 payments.

Waterluvian 4y ago
It sounds like that classic “focus on the things that can be measured easily” business finance attitude that causes things like “don’t kill your customers” to be missed.
- dylan604 4y ago
  Too bad "don't kill your suppliers" isn't a thing.
- meowmeowmoo 4y ago
  The customers of distributors are retailers. They’re not killing the retailer. They’d be killing the supplier in this scenario.
Xylakant 4y ago
Groceries is a high capital very low margin business because you need to have all of the things in store before you can sell them, some of them for extended periods. Essentially this reduces the amount of capital you need to upfront and shoves it down to the next in line. The alternative would be to take a loan.
WastingMyTime89 4y ago
It’s basically a free short term loan from your suppliers who are eating the inflation instead of you. It does strain your suppliers but if your business doesn’t really need them and you can force them to accept it, why not? As a supplier, payment delay is basically a cost you have to bear to deal with large distributors. It’s a trade off between somewhat predictable volumes and cash flow availability. I would never do a one off with a large distributor however. You are going to get swindled as this article nicely illustrates. Large distributors buyers have years of training exploiting people in your situation.

treeman79 4y ago

There are businesses that act as middle man for this. They’ll pay you say 97% of invoice. They’ll collect as they can

danhodgins 4y ago
Exactly, one type is called BNPL (buy now pay later).
meowmeowmoo 4y ago
They call this factoring in the trucking industry.

legitster 4y ago

> They do not care if you’re a small company with poor liquidity. This is a feature, not a bug. If you are in an inventory-rich industry, you do not want to deal with a supplier that has no working capital. Goods first - money later sucks if you are a small startup. But it's much easier to work with inventory and figure out the money later than vice-versa. Toyota does not want to stop the production line because their order of ball-bearings showed up late and now they have to start a new purchase cycle.

monocasa 4y ago
It's the other way around I've found for a lot of the automotive industry. Most of the big automotive companies try to keep their suppliers a hop and a skip away from not being able to keep the lights on in borderline debt bondage to the auto manufacturer. Puts them in a much better negotiating position and makes sure that the profits go to the auto manufacturer rather than their suppliers. That was half the reason for the chip shortage. Auto manufacturers collectively (and incorrectly) forecast a decline in demand in cars during the pandemic, cancelled a bunch of orders for chips and a bunch of the suppliers went under. Then started offering 10x-20x for replacement chips from their few remaining suppliers (that pretty much all went to buying out wafer slots that would have been non-automotive chips) to keep a $35k car not being able to be shipped for the lack of a $0.30 part.

detritus 4y ago

In my experience, the larger the organisation, the longer the presumed payment terms. I've learnt to demand payment in advance, otherwise I'll get caught up pos-hoc in the labyrinthine and entirely cloistered whims of accounts departments who seem to think they're morally-placed to dictate whatever terms they wish. Worst in my experience was Unilever, who simply assumed they could pay in 90 days, which ..er.. rankled. Thankfully the job I did was directly for someone quite high up, so a week's worth of pointed emails and calls somewhat hastened payment.

chasd00 4y ago
i've read comments like this before on hackernews. Are the payment terms not on the contract signed? It seems like something you'd really want to understand before starting a project...
- ryoshu 4y ago
  They generally are, but if you say net 30 and set a % penalty for not paying in net 30 (common), when a multi-billion dollar corporation decides to do net 90 and won't pay the penalty, what are you going to do as a freelancer? Sue them? The amount of money you spend on legal fees would likely be multiples of the penalty fees. And it would delay payment further. Big corporations rely on this power imbalance.
  - bombcar 4y ago
    I wonder how you could word the contract such that failure to pay on time would be onerous enough that the big company would actually move on it. Something like penalties + legal fees + treble damages or something.
    - pkilgore 4y ago
      Ask a lawyer!
      - 4y ago

cameronh90 4y ago

One thing about credit accounts is that it allows the people placing the order to be different to the ones involved in settling the account, and for the latter to be handled asynchronously rather than holding up the order. Imagine I need some stuff now (or on the next truck), I can place the order and it will be immediately loaded on the truck. Then separately, they'll send an invoice to the accounting department who will settle it over a week or two, which may involve moving money around, foreign exchange, etc.

yieldcrv 4y ago

I've seen this even worse outside of the US, and just how ... poor trade routes, trust and "markets" are. It really makes me appreciate the US more. But I am still dismayed that I'm all caught up on the state of commerce and that its not even more streamlined and sophisticated.

analog31 4y ago

It's worse than that because they will drag out payment after the term has passed. My first job out of school was for a mom-and-pop manufacturing company. I got an inquiry one day from a very well known company, and mentioned it to the boss. He gave me a long lecture about why we didn't work with that industry. They were notorious for stringing their suppliers along and holding them in a sort of debt bondage. I remember responding with a FAX (yeah, that's how it was done) explaining our terms: Pay in advance. The boss made sure that the business was never beholden to a single large customer. We also had a draconian, hair-trigger, credit hold process. I remember overhearing the scheduler / receptionist telling a customer: "You are on credit hold right now, we can't schedule your next production run."

Ekaros 4y ago
That to me sounds like we might lose revenue, but at least we are unlikely to lose money.
- analog31 4y ago
  It becomes a problem if you borrow to pay for tooling & plant in anticipation of getting paid for product. You might lose your shirt.
- fbdab103 4y ago
  Cash flow is the be-all end-all. If you cannot make rent, you are done. Big business does not care. Working for a big business, I have encountered other small companies who do not want to deal with us - getting $MEGACORP to pay their bills on time is a foreign concept.
monocasa 4y ago
> gave me a long lecture about why we didn't work with that industry. Automotive? That has big automotive energy.
grumple 4y ago
I think this is needed tbh. My fortune 10 company regularly pays our bills after the pay period - like 60 days late on a net 30. And then I, a technical person that just wants the damn AWS bill paid so I stop getting emailed about it, have to chase down the people responsible internally, even though they get the same billing emails. Because for some reason they didn't like the old way of setting up auto pay. Oh. And they will send literal paper checks to pay some bills... to closed offices since everybody works from home now. The accounts payable department wastes more time than they save.

daanlo 4y ago

In the case of food retailers you also need to consider the time on shelf. To take the coffee example. If any average shop buys 4 cases of coffee (24 bags) and on average sells 2 bags per week, then the last bags will sell after 12 weeks. On avg. it will be 6 weeks (42 days). Product will also spend 1-2 days in transit and might not be unpacked on the floor until 1-2 working days later (so maybe 2-3 days). We can assume payments take 1 day to process. So 46-48 days in total. So 50 day payment terms means they are more or less cash flow neutral. Numbers are made up, but roughly align with my experience of selling other durable food to grocery retailers.

asah 4y ago

In the food business net-terms pain starts from the retailer and work backwards towards the manufacturer. OTOH, it's very difficult to raise money as a retailer or distributor but 1000x easier (still hard) as a brand.

reillyse 4y ago

Yea but as a food producer (also a coffee roaster) I also get payment terms from my suppliers. And it all kind of makes sense when you think we are all adding value and margin. The “loan” everyone is giving to the people later in the chain is the cost of production rather than the final sale price. So for a 100k order it might cost 50k to produce in cost of goods. That 50k to the suppliers is probably 35k etc.

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richbell 4y ago

It absolutely is abusive behaviour, and it's unfortunately pervasive across industries. Bethesda is infamous for withholding payment to smaller companies to force an acquisition of IP. And (not to get political) big-shot celebrities like Donald Trump or online influences do it too. Often it's even worse than "we'll pay you later", it's "give us a steep discount and we'll pay you back in exposure/future opportunities to make a lot more."

ars 4y ago

I remember reading that one reason suppliers are willing to work with WalMart despite the low prices they pay is that WalMart doesn't play these games with delayed payments - they pay exactly when they say they will. They also have: https://walmart.c2fo.com/walmart https://walmart.c2fo.com/walmart

tapatio 4y ago

90 day "credit" terms are typical across many industries. Yes, it sucks, but also, it's a reason to not over extend yourself while trying to get to the next level.

gamblor956 4y ago

My ($x billion+-sized) employer pays vendors within 2 business days of the invoice being submitted through the internal payment process, regardless of whether the payment terms allow for us to do net-30 or net-60. It doesn't meaningfully affect our cash flow to delay payment, but it makes a huge difference for our vendors. As you've noted, a delayed payment can literally be the kiss of death for a small company.

Gibbon1 4y ago

After working at a small engineering firm whose owners were pretty open about the finances. Every time I read or hear someone ranting about how people with small time incomes and few assets have to 'pay their bills' I think back to the owners of that company bitching about this or that fortune 500 customer just up and not paying for stuff for months after it was delivered.

indymike 4y ago

In the mid 00's I had a digital agency and we hosted sites for a few fairly large hotel chains. One day, I got an email from procurement at one of them that said, "we're holding payment on all outstanding payables until next month." The hosting billing system shut their site down at 12:00pm the day after payment was due and dutifully redirected to the "pay your bill online page". Ten minutes later I get a frantic call from procurement, begging me to put the site up. I fumbled with the billing system, and finally told her, I think the only way to fix it is make a payment... which she did. $6,200 on credit card. The customer never missed a payment after that.