Invoice payment terms

[GeoffCapes]

I know there are a number of us on here who run their own companies so I thought I would ask you knowledgeable lot for your thoughts on the following:-

I have just done some work for a well known high street brand, and because I am not on their procurement list, the work was done via their Facilities Management company.

Their invoice should have been settled 3 weeks ago. So obviously I've chased it on several occasions to be told this morning that their terms of trade are 60 days from the end of the month that the invoice was sent. So in theory if you send them and invoice on the 1st of the month they may not pay it for 3 months!

My terms of trade are 30 days like every other client I have.

How do I stand legally on this? as they have indicated that I will be paid at the end of this month which will make the invoice 6 weeks overdue.

The amount is a none to inconsiderable £24.5k and obviously I have suppliers and contractors to pay.

I don't want to jeopardise any future work with the client as it is potentially worth a lot of money, but I don't want to wait 3 months for payment going forward.

Your thoughts would be appreciated.

 

[CatmanV2]

Stuffed mostly. Even if you get them to sign a contract that your invoices will be paid 30 days from issue, the sheer hassle of making it happen may well not be worth it.

Had a mate that used to make it clear that it was £24.5K if paid within 30 days (as a discount) otherwise it was 25% increase. Most of the time he got the higher amount as the accounts bods wouldn't pay in advance and the purchasing manager quite sensibly would say 'I signed off the invoice on the basis it would get paid'

Someone else might have a more up to date / aggressive view.

You could also sell it to a factoring company, but that will cost you

C

 

[Slowly]

My father always added 10% refundable if paid in 30 days - he was amazed and pleased by the number of companies who regularly paid a few days later and put the 10% into a bad debts contingency fund.

 

[drewf]

As Chris says, you as a small outfit will struggle with this - be heavy handed, and there won't be any future business.

Get it sorted upfront - your T&C should be part and parcel of the PO they give you, and you need to make it crystal clear that all works are undertaken in accordance with YOUR T&Cs, not THEIRS. Again, you can only do this upfront. Weighting the invoice for late payment is a valid tactic, but tends to mean they will shop elsewhere in the future.

So - on the front page of your outgoing quotations, ensure it's there in black and white that payment is STRICTLY 30 days nett, which might mean you will get paid inside two months, assuming you present invoices early in any month. Another point - ensure they receive them in good time, as another tactic some businesses use is to declare it wasn't processed by their accounts department before the end of the month, so it automatically moves back 30 days. And send statements each month of what exactly you are expecting to be due for payment

 

[GeoffCapes]

Thanks Drew, that's really useful.

I'll amend my quotations accordingly.

I have cited the Prompt Payment code which was introduced in the Small Business, Enterprise and Employment Act of 2015.
Even though it doesn't hold much weight if they didn't sign it.

It's a bit of a liberty though. This is why Tesco's were fined by the government as they had 90 day payment terms.
Apparently at one point Tesco's were responsible for 10 businesses a week folding due to their late payment terms and not settling CCJ's.
I guess this is one of the perils of working with the big boys.

 

[steamer]

I've found much the same, you pretty much

a. accept the work on that basis, if the profit is worth it and you can stand the cashflow.
or
b. explain your situation at the risk of losing the work.

It really winds me up. In general the bigger the company the worse the terms. They know if you won't do it someone will.

 

[allandwf]

I agree the bigger the company normally the worse. I worked for British Gas years ago, I used to struggle with cylinder deliverys from various companies as they froze the account as it was the only way for them to get paid!

 

[GeoffCapes]

Thanks Drew, that's really useful.

I'll amend my quotations accordingly.

I have cited the Prompt Payment code which was introduced in the Small Business, Enterprise and Employment Act of 2015.
Even though it doesn't hold much weight if they didn't sign it.

It's a bit of a liberty though. This is why Tesco's were fined by the government as they had 90 day payment terms.
Apparently at one point Tesco's were responsible for 10 businesses a week folding due to their late payment terms and not settling CCJ's.
I guess this is one of the perils of working with the big boys.

After a bit of Googling, my client (although not the FM company) have signed up to the prompt payment code.
Will question ask my client why it is taking the FM company so long then!

 

[Andyk]

I know my last company had 60 days as most big ones do and don't think there is much that you can do apart from keep being a pain but from experience it doesn't help.

 

[mjheathcote]

The company I work for agree with suppliers on 60 days, although if the supplier is small, and they ask, we can agree on 30.
Our customers (all blue chip multinationals) are now nearly all on 60 days paying us, hence why we have to pass on 60 days down the line.
It starts from the top and works on down.

 

[JDB]

See if they offer supplier financing. Many plcs now do so, it's different to debt factoring in that the interest rate is relatively low. Once they approve your invoice for payment, you decide when you want to pull the funds from their finance co, clearly the earlier you do, the more it costs. The interest charge is often tiny as the finance co knows the invoice is valid as the Plc has approved it, with the Plc having a good credit rating default is highly unlikely.
(Debt factoring is different and is an advance to you from a finance co based on services they hope will be paid to them in due course, therefore higher risk and higher fee).

 

[outrun]

I'd be patient, if you can. They are likely to pay and you can learn from this experience and try to agree more suitable terms next time. Given the hassle involved in chasing, why bother. The money will arrive. It can either arrive with you being stressed while you wait and chase, or it can arrive when they said with you learning not to allow those terms in the future. It's not right but it's the path of least resistance.

 

[bigbob]

I'd be patient, if you can. They are likely to pay and you can learn from this experience and try to agree more suitable terms next time. Given the hassle involved in chasing, why bother. The money will arrive. It can either arrive with you being stressed while you wait and chase, or it can arrive when they said with you learning not to allow those terms in the future. It's not right but it's the path of least resistance.

Agree with this. Remember with any business as long as your turnover is give or take the same it is not what your debtor days are that matters, it is how they change that is key for managing cashflow. Sure reducing them is great but in a steady state you paid for the debtor period when you set up the business.

 

[Jkulin]

Probably a little different for me, I invoice when everything has been put in place in the country of departure and insist on payment before the vehicle leaves or it doesn't ship, doesn't matter who the client is, that is the way I work.

I invoiced a rather large client in the film industry and they tried to blag the old story of 60 days, told them nope, it wasn't paid by Wednesday then it went legal, they paid today, it was only £1500, but they want to spend £125K within the next 12 months and there will definitely not be any slacking of the invoicing.

Oh and we don't accept cheques, BACS or direct bank transfers only.

I always explain the situation to my clients and if their finance department can't work with that then I don't want to deal with them as a company.

Our T&C's are published as a link on every page of our web site and our invoice clearly states that we retain title according to our T&C's

We pay our invoices on receipt, don't have any borrowings and don't see why we should have to wait on being paid.

Maybe harsh, but like us Mark you offer a very unique service, might be time to be firm when you have agreed the deal and follow up in writing.

 

[jluis]

Probably a little different for me, I invoice when everything has been put in place in the country of departure and insist on payment before the vehicle leaves or it doesn't ship, doesn't matter who the client is, that is the way I work.

I invoiced a rather large client in the film industry and they tried to blag the old story of 60 days, told them nope, it wasn't paid by Wednesday then it went legal, they paid today, it was only £1500, but they want to spend £125K within the next 12 months and there will definitely not be any slacking of the invoicing.

Oh and we don't accept cheques, BACS or direct bank transfers only.

I always explain the situation to my clients and if their finance department can't work with that then I don't want to deal with them as a company.

Our T&C's are published as a link on every page of our web site and our invoice clearly states that we retain title according to our T&C's

We pay our invoices on receipt, don't have any borrowings and don't see why we should have to wait on being paid.

Maybe harsh, but like us Mark you offer a very unique service, might be time to be firm when you have agreed the deal and follow up in writing.

Unfortunately that only works on businesses where you have little to no competition.
I'm a freelance contractor and I'm lucky to be paid 15 days after the invoice but I have colleagues working at the same place I work but trough different contracting firms and they get paid 60 days after the invoice is submitted.
If there is a problem on the invoice, a new one has to be submitted and that's another 60 days ...

 

[rockits]

I hate all this & often a case of the big boys can do what they want & generally do. Pretty much quite simply bullying.

If you set your terms out upfront & they sign up to this they have to adhere to those terms or pay penalties. It has to all be done in writing & often a solicitor can draw up a simple supplier agreement for a few hundred quid.

If these terms have not been agreed in writing day one you are pretty much stuffed and have a few options.

Either put up & shut up. Cash flow it if you can organically or if not through financing. Tell your contractors that all work for this customer will be on 60 days nett & put a supplier agreement in place there as well. They get paid when you do. If they know upfront there should be no issue.

Depends if what you are providing is unique or valuable and how dispensible you are. If your valuable a few words in the right ears might work wonders & 30 days may be possible.

How much work is there and will they be a good customer? Will one bad debt or non-payment hurt or finish you? How good or profitable is the work? It is a kind of balancing game really. Risk vs Reward and managing the risk.

Don't be afraid to push hard if they are taking the pee & going past any agreed terms. Nip it in the bud early & don't let it continue. Precedents get set & then are hard to change these expectations.

I am still learning all this & have made & are still make plenty of mistakes after many years. Gut feeling is a very useful and able tool.

I'm in court Friday chasing a non-paying customer so maybe don't do completely as I say! They are a much bigger business then us & have taken the pee. Enough was enough...I tried to settle but that seemed intent on no paying what they owe.

 

[Jkulin]

Totally agree with the above, the important thing is that if you threaten legal action that you do actually mean it, don't just threaten.

I have taken a number of companies to court in the past for non payment and won, just make sure you get the correct company name on the application by doing a search beforehand.

 

[Felonious Crud]

Agree with all this. In short: implicit terms are a waste of time. Make payment terms, contracting entities and contracting terms abundantly clear. And remember that unless they're signed they ain't worth sh1t. And find out what their buying and paying process is before you start work. Your proposal should state that you assume your standard terms but when they insist on theirs you have an excuse to revise your prices. There's a cost to them holding your money for an extra 30 days. Add it in.

In the meantime treat it as a lesson hard learned. Bloody sods.

 

[VMSRTI]

Most of my invoices are paid 60 days later but in some instances (if I don't get it in by end of month, it turns to 90 as is in your case). A few pay within a week or two but I have just learnt to be patient.

What does irritate me is when their payment term has elapsed and funds are not received which then means follow up (sometimes several times).

Currently dealing with a UK coy who has not paid the last 3 invoices but has sent me a request for further work. I have made it clear that no further work will be done until payment is received.

 

[2b1ask1]

I have a friend whose family company of 60 years + was deliberately put out of business by a large construction company, they provided all the tracks and framework for the lift shafts on a large glass landmark building in London. They put in over £250k in materials, using every bit of the companies working capital and then some, the staged payments never arrived, despite retaining title of the material there was no way they could remove them from the building and the main contractor knew as much. They were simply hung out to dry, the contract manager basically offered them 10% to pi$$ off or nothing. No recourse available to them and the business folded. He now works as an estimator and ironically ended up banging heads with the contract manager who stated that what had happened to them was common practice on that and other builds!

I tend to have a very small client base and a big invoice for me is £5k, I keep my clients diverse however as I have been caught too many times by companies I have worked for running out of money and not paying. Minimise my losses by spreading it around works for me. I operate on strictly 28 days from invoice and when they do run over I send statements after 28 days over then every 14 days with interest calculations and a £25 admin charge for every statement. This usually works well but when it doesn't at 90 days I notify the intention to sell the debt to a recovery agent; this has always worked so far, once spectacularly with a personal phone call from the CFO of a large architects firm from Sacramento assuring me the funds would be 'wired today' and it was

I have thought about offering an early payment discount as seems to be on trend at the moment but a lot of my work is directly to local authorities and parish councils and they are unable to benefit from it and they often have to spend the full budget or loose it the next year.