As a business owner, it is very important to understand the power of money at work in your company. Over the life of the business, understanding the cost of not taking a vendor’s discount or of not following up on receivables until they become uncollectible can literally make the difference between success and failure. Some companies understand that all too well, (usually the large ones) and they are very good at putting your money to work in their business.
It all started when the RB (Really Big) Company called on Friday at 4:45 PM. While you have been a small but regular customer of theirs, you have also been trying to get their business for years. While the caller wasn’t particularly friendly, you chalked that up to the fact that he was under the gun and it was late in the week. You saw this as perhaps your chance to get a foot in the door and win some business for your firm. The request was a bit complicated, and you weren’t sure the final dollar amount of the invoice was representative of everything that was involved on your part to fulfill it. On the other hand however, you were sure the effort put forth to obtain the item you tracked down for RB Company would likely be rewarded with future business. As a customer, RB’s accounts receivable group was very efficient at collecting money owed them. Their terms were 1% 10/Net 15, and after 30 days you would begin hearing from their credit group. By 45 days they were firm in their discussions and by 60 days they were downright importunate. Based on that, you are certain their payables department would handle invoices the same way. You sent off your invoice following fulfillment of the order… And it was never heard from again.
Your contact at 30 days was not returned, but a busy schedule prevented you from realizing they still hadn’t paid at 60 days. You were more persistent this time when contacting them, especially since you had gone out of their way to meet their need when they were in a bind. The best you are able to get from them however was a gruff statement about they would “look into it.” By 90 days you are getting seriously aggravated and that showed in your voice when you spoke with their accounts payable department. Finally, you received payment 110 days after your initial invoice was sent – and they had taken the early payment discount!
Has that ever been your business? If so, you would not be alone. It’s unfortunate that there are companies who abuse their vendors by not paying them in a timely manner, but don’t be the one that lets them ensnare your funds into their deliberate web of cash flow manipulation.