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How to Deal with Big Customers Who are Taking Longer to Pay

Published Monday Jun 18, 2012

Author MICHELLE DUNN

Angus Loten at The Wall Street Journal reported that big customers are taking longer to pay and that many large companies are hoarding cash and squeezing small firms that have fewer resources and less access to loans. Loten reports that small businesses are waiting longer for their commercial customers to pay invoices, and trend that began in the 2008 recession.

Having been a small business owner and the owner of a third party collection agency, I can tell you that large companies have been paying small business owners later and later for years but may be worse now because of the economy. As a small business owner, this is exactly one of the reasons you should never put all your eggs in one basket or be lenient with payment terms. For example, as a writer who has been published through John Wiley & Sons and Entrepreneur Press as well as being a self-published author, I have had a very hard time getting paid from large bookstores when they order my books directly from me. The way I resolved this with one big bookstore was to require them to provide a check with their purchase order, pre-payment on any order. Many authors have this same problem with getting paid and when I tell them how I handled it, they don't want to do that! They are afraid of not getting the order if they are too strict with their payment terms. That is the wrong way to be thinking about your money and your business.

If someone, no matter how big or small they are, does not meet your payment terms, and you still provide services or ship them products they will never pay you on time and may even take longer to pay. They will be letting your invoices sit around longer and longer as they pay the businesses that enforce their payment terms and don't allow them to pay late. When you allow a large customer to pay you later, then later and later and later, you are telling them that you are not serious about your money, your business or getting paid.  Plus you lose all profit and have to spend time and money trying to collect your money. Most people don't like making collection calls, so don't put yourself in that position.

Most business owners I spoke with tell me the reason they let these big companies get away with paying them late is because they are placing large orders, sometimes larger than that small business has seen, and the business owner sees these copmanies as a great new, large customer that will help them be successful and make more money.  As a small business owner you should never be so excited to make a sale that you forget why you are in business:  to make money. You don't let smaller customers get away with not paying you, or paying you late, so why do you let a big customer treat you this way?  Many business owners say it is because they are afraid of losing the big sale. Let's keep it real, when you make a big sale and then don't get paid on time, you start losing money and you start spending time on this bad customer who isn't paying you and neglecting your good paying customers, who may be smaller companies. Let a big company that is going to string you along and put off paying you go to the competition. This way you will be in business longer, make more money and be more successful without all the headaches and grief of chasing a big corporation and begging them to throw you a few pennies.

You can see an example of this when you read the story in the WSJ and see that Mr. Sheth's company, Anatta Design has been forced to put off hiring, expanding and probably much more due to one large customer taking longer to pay and ignoring his payment terms. In essence when a company does this, they are telling you that they don't care about your terms, they don't care when you want to or need to be paid, and if you go out of business because they are slow to pay you, they will just move on to the next guy who can provide a similar service and start paying them late, if they allow it. Don't give away your power to a big corporation trying to push you around. When you allow them to pay late you give them your power and now they control when and if you get paid.

In the WSJ article a Ford spokesman stated that they pay most of their invoices (80%) within 40-45 days and the rest are paid on standard industry practices. What are those standard industry practices and how does that affect your business?  Ford isn't the only big company out there that pays some of their invoices based on standard industry practices when it should be paying them on the terms set by the seller. It has been my experience when working with big customers that they do not even look at your terms because they are going to pay you on their terms. It is up to you to make them sign a contract or agreement that clearly outlines your payment terms don't be scared off because this is a big customer. Having a big customer is not always a good strategy for your business, sometimes having many smaller to medium size companies that pay on time is much more profitable, less stressful and most helpful to the growth of your business.

The big customers that pay late, take deductions and ignore payment terms hurt this country's small business growth which is essential to rebuilding the economy. When a small business doesn't get paid on time or at all they lose money and might have to lay people off, cut hours, cut benefits or even go out of business. Small businesses that rely on big customers to keep their business running end up paying their own bills late, and have to either renegotiate terms with their own suppliers or run the risk of losing some of their credit or facing late fees and penalties for paying late.  Mr. Sheth of Anatta Design has the right idea. According to the WSJ, he is now focusing on gaining clients among midsize companies and based on that he has found that they have a better track record when it comes to paying their bills on time.  Based on my own experience, I have to agree.

Michelle Dunn is an author of several columns and books, webinar host, and consultant. She coaches business owners on how they can limit credit risk in this economy, prevent bad debt and collect from past due customers.  To learn more, visit www.michelledunn.com.

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