6 ms·

Relating to cash flow and payment terms, my company (outside of tech) has a particularly large client (rev >$2B AUD, 10k employees worldwide) that has us on 45

by mwill 4y ago

Relating to cash flow and payment terms, my company (outside of tech) has a particularly large client (rev >$2B AUD, 10k employees worldwide) that has us on 45 days EOM, but accounts team won't accept an invoice without a ref#, which are given by the "receipting team" after site confirms work is completed The mysterious "receipting team" is not in the main office, and has no phone number or even names listed, emails are never directly replied to, instead site contacts will call to relay questions/answers from them, ref# come from an automated do-not-reply email. They will quite often be "backlogged" and fail to send a ref# before the the end of the month, and suddenly will be cleared up on the 1st of the month. We've had jobs that finished in the first week of a month, been ignored for 25 days, received a ref# with an apology for the delay on the 1st of the following month, get paid 45 days end of that month. So up to 100 days from completing work to getting paid. All our accounts are POS, 7 days EOM, or 30 days EOM, and must be paid on time or we lose supply. So to do a job with $100k of materials and wages for them, we have to have $100k spare cash for up to 60-100 days It's not a cashflow problem, they're sitting on reserves and we're a blip on their radar, less than 1/10th of a percent of their outgoings So we quote them outrageously high, and they never blink. I've told them some jobs would be up to 50% less if they paid quicker, and they've outright said they'd rather hold the cash and pay more. For a sense of scale we've invoiced them about $500k a year for the last few years, they've told me to clear out a couple weeks for two jobs that are nearly that much each, in February and April this year. I can't figure out who's getting the bad deal, them or me, I keep assuming they must have some massive upside I'm not seeing ¯\_(ツ)_/¯

sokoloff 4y ago
If you can swing the cash flow, keep billing them at a rate that makes sense for your business. So many AP departments are incentivized on payment delays. Let them “win” their stupid game and just build the cost plus some extra into your rates.
- mwill 4y ago
  Yeah thankfully we can swing it, but we've actually turned down some work for other clients here and there because I've done the math and figured there was too much overlap/risk with this particular clients jobs.
bombcar 4y ago
This is why you don’t have to fire all annoying customers - just start raising the prices on them to insane levels
- ericlewis 4y ago
  My grandfather referred to this as the "asshole tax".
tgsovlerkhgsel 4y ago
Business payment terms, and more importantly their handling (read: usually ignoring) seem bonkers to me. I understand why net-something makes sense, but the apparently universal tendency to agree to a term then routinely pay an arbitrary time later seems crazy. I just don't understand how it became so normalized.
- kwhitefoot 4y ago
  I suspect that it happens because of the asymmetrical power relationships between the customer and supplier. The suppliers are typically too small to have the option to sue. Perhaps the solution is to make this kind of breach of contract a strict liability criminal offence!
  - ncallaway 4y ago
    A better solution is to negotiate the late payment penalty in the contract itself, then just add the late payment penalty as a line item on future invoices. Don’t put it on the invoice of payment is close to on time, and waive the first late payment (if the other payments are close to on time). When waiving it, put the late payment fee in the invoice and and another line item waiving it. In whatever communication channel you send the invoice, note that they had a late payment, and that since it’s the first time you’ve waived it.
    - kwhitefoot 4y ago
      That sounds like a neat solution. Much less confrontational than taking it to court or a collections agency.
Denvercoder9 4y ago
> I keep assuming they must have some massive upside I'm not seeing My default assumption would not be that there's an upside in this for them, but that they're a disfunctional organization. The people procuring your services and authorizing the expense are not in contact with or unable to influence the people planning and authorizing the payment. They might not even share a superior all the way up to the board, with the procurement people reporting to the COO and the payment people to the CFO. If it's easier to spend the company's money than to save it, people will spend it. Corporate seldom rewards saving money anyway.
- dazc 4y ago
  Based on previous experience, I concur. There are businesses with a culture of 'pay late no matter what' and this becomes the norm, regardless of logic. I had a manager who could buy just about anything he wanted with no checks as to why he needed this stuff or where it went. The only control was the time period between delivery and payment.
mathattack 4y ago
2 logical options: 1) They aren’t as fiscally sound as you think. 2) They’ve sub optimized and someone is looking very good for stretching payment terms at the expense of the rest of the company. Once they do this it can be hard to walk back as someone centrally has to justify more working capital.
- mwill 4y ago
  I'm pretty confident on their soundness, they're publicly traded and I check up on clients lodgings when I can, to manage my exposure, they claim to be sitting on $400M in cash and $200M in minerals as of a few months ago. Option 2 seems plausible, a couple years ago they had a bit of internal politics that we were caught in the middle of, the end result was changing the engineering requirements going forward over purely cosmetic issues, doubling the price of materials. One particular job we did in 2019 for $30k, was $150k in 2022, for the same exact end result for the workers, at the same site, right next to the previous one. The site manager complained, and I said if he got it in writing that they wanted to use the old engineering and disregard the cosmetics, it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.
  - yellow_lead 4y ago
    > it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering. ouch. This kind of situation could benefit from a cost savings program at that company.
    - mikepurvis 4y ago
      I'm genuinely curious at how a top-down initiative could succeed at rooting out this type of waste. Without empowering the cost savings to speak directly to the vendor, it's hard to imagine them being able to discover that paying a month or two sooner could get them non-FU pricing.
bruce511 4y ago
You're both getting what you want, but you are different businesses, so you are optimizing for different things. In other words, you have a business of a certain size with a certain set of constraints and goals. For most small businesses the constraint is not enough money, and the goal is to make more money. Naturally you see your client as a "big version of your business" and therefore you think they are optimizing to the same goals as you. When interacting with corporates this is a really common mistake. What's really happening is that to them they have all the cash in the world. The difference between 30k and 150k is nothing. Literally nothing. However they likely have incomings and outgoings totally hundreds of millions, if not billions, each month. When you move that much money some jobs are likely to be _really_ big, and doing it right the first time I'd important. So they have a buying, and paying, process. That process is optimised for say 50M and up. But the process applied to all purchasing, they want 1 process, not 3 or 5 or 10. Your tiny rounding error if a job is therefore irrelevant. Money is not the limit. They want to use their process. Andif you are happy to wait 100 days, then they are happy to spend more. Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle. Since $1.50 is nothing, you're happy to pay more for no hassles. Neither of you are getting a bad deal, and yes they are getting upside you can't see. You are playing to one set of rules, bug they have a very different rule book.
- B-Con 4y ago
  This is an incredibly realistic and pragmatic take on how large companies work. > You're both getting what you want, but you are different businesses, so you are optimizing for different things. [...] > The difference between 30k and 150k is nothing. Literally nothing. [...] > Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle. Anyone who struggles to understand why corporations do what they do should internalize this thought process. It explains a lot.
  - qprofyeh 4y ago
    So I assume if they hired someone cheap who’s only job is to manage OPs account payments, and they did this for perhaps 100 other accounts (manager per account), they’d still make millions profit extra, yearly? I indeed struggle to understand why anyone is leaving that on the table.
emptysands 4y ago
Cash can be both capital and operating funds. They may want to keep certain debt ratios and are not worried about impact on net income.
kccqzy 4y ago
This is an area where banks can help. A bank can loan you the money immediately after the job is done with a low-ish interest rate (since your client is publicly traded and reputable and presumably highly creditworthy) and then ask for repayment only when the 45 days EOM is up. Alternatively you just ask the bank for a fraction of the invoice amount upfront and not think about paying interest to the bank any more. It's called invoice factoring.
- cik2e 4y ago
  That sounds like some good practical advice, but also slightly vomit inducing. >> Economists such as Lord Adair Turner, the former chair of the British Financial Services Authority, have argued that innovation in the financial industry is often a form of rent-seeking.[24][25] source: https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking Do they not teach this stuff in an undergraduate business classes any more? "Float" was BIZ101 and in BIZ102 you learn how to read financial statements... The "genius restaurateur" in the article rediscovered the art of not paying your bills with a credit card, i.e., the "debt trap".
  - kccqzy 4y ago
    > but also slightly vomit inducing. It's similar to a payday loan, except for businesses. Maybe that's why the bad rep comes from. Of course with my personal experience the interest rate is nowhere as high.
AussieWog93 4y ago
>I keep assuming they must have some massive upside I'm not seeing ¯\_(ツ)_/¯ There is a massive upside for the person you're talking to in accounts payable. By making the whole tender process ridiculous, they get to hold onto their bullshit job. I've found similar things when dealing with corporates. They'll never try to negotiate the price down, but they'll be damned if they don't get to rack up their Amex points. :) The golden rule I keep in mind is that you're never speaking to a company - instead, you're dealing with a human.
rahimnathwani 4y ago
"some jobs would be up to 50% less if they paid quicker" Why would you give someone a 50% discount for faster payment? Is your cost of capital so high? Maybe I can pay you advance (with the 50% discount) and then, 100 days later, collect 100% from the customer?
- mwill 4y ago
  It makes no sense when you frame it that way of course haha, but it's only possible to look at it that way now that we've been working for them for several years. When I started raising prices, taking a medium/large sized job from them was an huge risk. If I hadn't started hiking the prices when I did, We probably would have folded later that year when we did a much larger job for them, if I hadn't been stockpiling the extra cash from their smaller jobs. It was an enormous existential risk early on when I had less capital to play with, now in a weird way I can look at it how you say: The company is loaning itself 50% to make 100% later. That said, fair's fair so I'd still honor the offer if they asked: I don't/can't quote other clients that much, so if they wanted to pay on reasonable terms I would charge them reasonable prices.
lencastre 4y ago
So you are financing your client. Same thing happens in the construction industry. Client pays 30 days after invoice (which can only be issued after an IPC is signed), then the main contractor pays all subcontractors 30 to 60 days after and their IPCs must VE proportionally to the Main Client approved IPC, in turn subcontractors pay material suppliers and equipment rentals after that. The only payment “on-time” are taxes and salaries, freelancers are treated as suppliers of course. In the Iberian Peninsula it wasn’t unheard of 180 days after invoice. And there is only so much you can blame on SAP.

by mwill 4y ago

sokoloff 4y ago

If you can swing the cash flow, keep billing them at a rate that makes sense for your business. So many AP departments are incentivized on payment delays. Let them “win” their stupid game and just build the cost plus some extra into your rates.

mwill 4y ago
Yeah thankfully we can swing it, but we've actually turned down some work for other clients here and there because I've done the math and figured there was too much overlap/risk with this particular clients jobs.

bombcar 4y ago

This is why you don’t have to fire all annoying customers - just start raising the prices on them to insane levels

ericlewis 4y ago
My grandfather referred to this as the "asshole tax".

tgsovlerkhgsel 4y ago

Business payment terms, and more importantly their handling (read: usually ignoring) seem bonkers to me. I understand why net-something makes sense, but the apparently universal tendency to agree to a term then routinely pay an arbitrary time later seems crazy. I just don't understand how it became so normalized.

kwhitefoot 4y ago
I suspect that it happens because of the asymmetrical power relationships between the customer and supplier. The suppliers are typically too small to have the option to sue. Perhaps the solution is to make this kind of breach of contract a strict liability criminal offence!
- ncallaway 4y ago
  A better solution is to negotiate the late payment penalty in the contract itself, then just add the late payment penalty as a line item on future invoices. Don’t put it on the invoice of payment is close to on time, and waive the first late payment (if the other payments are close to on time). When waiving it, put the late payment fee in the invoice and and another line item waiving it. In whatever communication channel you send the invoice, note that they had a late payment, and that since it’s the first time you’ve waived it.
  - kwhitefoot 4y ago
    That sounds like a neat solution. Much less confrontational than taking it to court or a collections agency.

Denvercoder9 4y ago

> I keep assuming they must have some massive upside I'm not seeing My default assumption would not be that there's an upside in this for them, but that they're a disfunctional organization. The people procuring your services and authorizing the expense are not in contact with or unable to influence the people planning and authorizing the payment. They might not even share a superior all the way up to the board, with the procurement people reporting to the COO and the payment people to the CFO. If it's easier to spend the company's money than to save it, people will spend it. Corporate seldom rewards saving money anyway.

dazc 4y ago
Based on previous experience, I concur. There are businesses with a culture of 'pay late no matter what' and this becomes the norm, regardless of logic. I had a manager who could buy just about anything he wanted with no checks as to why he needed this stuff or where it went. The only control was the time period between delivery and payment.

mathattack 4y ago

2 logical options: 1) They aren’t as fiscally sound as you think. 2) They’ve sub optimized and someone is looking very good for stretching payment terms at the expense of the rest of the company. Once they do this it can be hard to walk back as someone centrally has to justify more working capital.

mwill 4y ago
I'm pretty confident on their soundness, they're publicly traded and I check up on clients lodgings when I can, to manage my exposure, they claim to be sitting on $400M in cash and $200M in minerals as of a few months ago. Option 2 seems plausible, a couple years ago they had a bit of internal politics that we were caught in the middle of, the end result was changing the engineering requirements going forward over purely cosmetic issues, doubling the price of materials. One particular job we did in 2019 for $30k, was $150k in 2022, for the same exact end result for the workers, at the same site, right next to the previous one. The site manager complained, and I said if he got it in writing that they wanted to use the old engineering and disregard the cosmetics, it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.
- yellow_lead 4y ago
  > it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering. ouch. This kind of situation could benefit from a cost savings program at that company.
  - mikepurvis 4y ago
    I'm genuinely curious at how a top-down initiative could succeed at rooting out this type of waste. Without empowering the cost savings to speak directly to the vendor, it's hard to imagine them being able to discover that paying a month or two sooner could get them non-FU pricing.

bruce511 4y ago

You're both getting what you want, but you are different businesses, so you are optimizing for different things. In other words, you have a business of a certain size with a certain set of constraints and goals. For most small businesses the constraint is not enough money, and the goal is to make more money. Naturally you see your client as a "big version of your business" and therefore you think they are optimizing to the same goals as you. When interacting with corporates this is a really common mistake. What's really happening is that to them they have all the cash in the world. The difference between 30k and 150k is nothing. Literally nothing. However they likely have incomings and outgoings totally hundreds of millions, if not billions, each month. When you move that much money some jobs are likely to be _really_ big, and doing it right the first time I'd important. So they have a buying, and paying, process. That process is optimised for say 50M and up. But the process applied to all purchasing, they want 1 process, not 3 or 5 or 10. Your tiny rounding error if a job is therefore irrelevant. Money is not the limit. They want to use their process. Andif you are happy to wait 100 days, then they are happy to spend more. Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle. Since $1.50 is nothing, you're happy to pay more for no hassles. Neither of you are getting a bad deal, and yes they are getting upside you can't see. You are playing to one set of rules, bug they have a very different rule book.

B-Con 4y ago
This is an incredibly realistic and pragmatic take on how large companies work. > You're both getting what you want, but you are different businesses, so you are optimizing for different things. [...] > The difference between 30k and 150k is nothing. Literally nothing. [...] > Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle. Anyone who struggles to understand why corporations do what they do should internalize this thought process. It explains a lot.
- qprofyeh 4y ago
  So I assume if they hired someone cheap who’s only job is to manage OPs account payments, and they did this for perhaps 100 other accounts (manager per account), they’d still make millions profit extra, yearly? I indeed struggle to understand why anyone is leaving that on the table.

emptysands 4y ago

Cash can be both capital and operating funds. They may want to keep certain debt ratios and are not worried about impact on net income.

kccqzy 4y ago

This is an area where banks can help. A bank can loan you the money immediately after the job is done with a low-ish interest rate (since your client is publicly traded and reputable and presumably highly creditworthy) and then ask for repayment only when the 45 days EOM is up. Alternatively you just ask the bank for a fraction of the invoice amount upfront and not think about paying interest to the bank any more. It's called invoice factoring.

cik2e 4y ago
That sounds like some good practical advice, but also slightly vomit inducing. >> Economists such as Lord Adair Turner, the former chair of the British Financial Services Authority, have argued that innovation in the financial industry is often a form of rent-seeking.[24][25] source: https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking Do they not teach this stuff in an undergraduate business classes any more? "Float" was BIZ101 and in BIZ102 you learn how to read financial statements... The "genius restaurateur" in the article rediscovered the art of not paying your bills with a credit card, i.e., the "debt trap".
- kccqzy 4y ago
  > but also slightly vomit inducing. It's similar to a payday loan, except for businesses. Maybe that's why the bad rep comes from. Of course with my personal experience the interest rate is nowhere as high.

AussieWog93 4y ago

>I keep assuming they must have some massive upside I'm not seeing ¯\_(ツ)_/¯ There is a massive upside for the person you're talking to in accounts payable. By making the whole tender process ridiculous, they get to hold onto their bullshit job. I've found similar things when dealing with corporates. They'll never try to negotiate the price down, but they'll be damned if they don't get to rack up their Amex points. :) The golden rule I keep in mind is that you're never speaking to a company - instead, you're dealing with a human.

rahimnathwani 4y ago

"some jobs would be up to 50% less if they paid quicker" Why would you give someone a 50% discount for faster payment? Is your cost of capital so high? Maybe I can pay you advance (with the 50% discount) and then, 100 days later, collect 100% from the customer?

mwill 4y ago
It makes no sense when you frame it that way of course haha, but it's only possible to look at it that way now that we've been working for them for several years. When I started raising prices, taking a medium/large sized job from them was an huge risk. If I hadn't started hiking the prices when I did, We probably would have folded later that year when we did a much larger job for them, if I hadn't been stockpiling the extra cash from their smaller jobs. It was an enormous existential risk early on when I had less capital to play with, now in a weird way I can look at it how you say: The company is loaning itself 50% to make 100% later. That said, fair's fair so I'd still honor the offer if they asked: I don't/can't quote other clients that much, so if they wanted to pay on reasonable terms I would charge them reasonable prices.

lencastre 4y ago

So you are financing your client. Same thing happens in the construction industry. Client pays 30 days after invoice (which can only be issued after an IPC is signed), then the main contractor pays all subcontractors 30 to 60 days after and their IPCs must VE proportionally to the Main Client approved IPC, in turn subcontractors pay material suppliers and equipment rentals after that. The only payment “on-time” are taxes and salaries, freelancers are treated as suppliers of course. In the Iberian Peninsula it wasn’t unheard of 180 days after invoice. And there is only so much you can blame on SAP.