As pointed out repeatedly by Pete Loughlin over on Purchasing Insight (and in this recent post) and SI (including this recent Blue Friday post), big customers are trying to push payment terms to ridiculous extremes and, frankly, hoping their suppliers will bend over and take it without any resistance. But just because it’s their fantasy, it doesn’t mean it should be your reality. You have to stand up for yourself and help bring this foolishness to an end.
How do you do it? A recent article over on CFO.com on what to do when your big customer wants to pay late had some great advice. Summarizing, and extending, it, we can see that you should:
- Know Your Worth
Chances are that you are providing a unique value and you should not be afraid to make it clear. And if it’s really unique, your customer doesn’t have (very m)any options besides you.
- Understand the Relationship
Has it been a long term relationship? A good relationship? Have you been paid on time regularly in the past? Have you been providing value over and above committed levels? If the relationship has been good, if you were contracted to provide a product but have also been providing free value-add consulting, if you were always paid on time for always delivering on time and maintained a good relationship, point that out.
- Create Flexible Payment Strategies
This doesn’t (necessarily) mean early payment discounts, but it could include such for (really) fast payments. Consider multiple (milestone-based) billings that the customer can digest over time, rather than one big bill at the end (within reason).
- Avoid the Procrastinating Accounts Payable (AP) Department
They are the boneheads that still believe extending DPO is a good thing (even though a recent Hackett study demonstrated that playing this game actually costs them an extra 10% in the end). Deal with Procurement and/or the buying organization who have a better chance of understanding that delaying payments unnecessarily only hurts everyone in the long run.
- Suggest Financing
where the customer enters into a relationship with a bank who pays you right away, at a small discount, and then the customer pays the bank on their schedule, for a fee. Done right, it’s better (for you) than an early payment discount as its an immediate payment.
and if all that doesn’t work, do what Pete suggests:
- Name and Shame Them Publicly
Be civil and respectful, but don’t be afraid to let the world know, in no uncertain terms, that they are either being deliberately cruel or incompetent.
SI likes Pete’s suggestion best, but agrees that you should try the more professional methods listed in the CFO article first. But if they don’t work …