You Are  Successful, So Why Do I Have to Pay

There seems to be a recurring theme lately.  Perhaps it is a sign of the economic times or maybe it is an indicator of a growing “business” mentality.  The “price of success” for some seems to be a growing segment of clientele who do not want to pay for the product delivered. Colleagues, readers, and others have been asking questions such as the following:

“Why do some customers think they are entitled to pay when they get the money from X project not when the invoice is due as agreed?  My company delivered the product.  It is working.  They are using it to make the product they sell.  But they refuse to make any payments.  The invoices are past due by 9 months!  When we call them, they say they are waiting for payment from one of their customers and when they get it we’ll get part of ours.  Those weren’t the terms…and what is this “part” of our invoice?  The entire six-figure invoice is past due!  Going to court seems the only option, but that is just going to be even more money spent!  When we’ve spoken with them, we hear that “well you’re doing so well it won’t hurt you to wait”.  When did a vendor’s real or perceived success determine when we get paid?  What is going on?!”

While it is almost inevitable that every business will experience a cash flow issue at some point in time, it shouldn’t be inevitable that a cash-tight business leave a vendor out the cost of the equipment, profit, and financing of the purchase.  While some companies have the philosophy that by the time it goes to court, it won’t matter because the vendor still won’t be able to collect (and that may be the reality), others aren’t intentionally “managing cash flow” by defaulting on payments.  Still others are somewhere in the middle of the spectrum, tight on cash and just unable to pay.

If your business is in the “tight on cash and just can’t pay the full amount” category, then placing a phone call to your vendor BEFORE you miss the payment deadline is the first step to take.  Being honest about your situation can lessen the animosity which arises from late and non-payment.  Many vendors would rather have some payment being made toward the balance owed than get absolutely nothing.  Negotiating a change in terms – lengthening of payment period for instance – can occur.  This may not make both sides “happy;” it at least reassures the vendor that the account isn’t going to be a write-off.  IF you are successful in negotiating new terms, make sure they are ones you can actually meet!

If your business is “tight on cash” as a matter of day-to-day existence, then reigning in expenditures and cutting costs on “extras” should be a priority.  Then payment for necessary business items (such as manufacturing equipment, rent, phones, utilities, sales programs, etc.) can occur and the obligations resulting from those purchases are met.  Credit ratings plummet quickly on late and non-payment of invoices.  A business can be put on a cash-on-delivery basis by everyone from the courier service to equipment and supply vendors.  When you become a COD company, cash management and cash flow take on an even larger meaning in your organization.

There are some who feel entitled to “not pay” for services, products, or technology which was delivered, is functioning properly, etc., because cash is tight, or they want a new car or a vacation, or some little “extra” for the business is calling their name.  They  forget the effect on stakeholders, whether they be customers seeking refunds, vendors seeking payment, or employees waiting for paychecks, bonuses, or expense reimbursements.  Remember that the damage you do by paying late or not at all has far reaching consequences for your business.  The reputation you build is more than what gets reported to the credit rating services.  Vendors talk.  Customers walk.  Employees balk. Your business can’t do business when it becomes known for being “entitled” to not pay.

Stakeholders – vendors, customers, and employees – are entitled.  They are entitled to payment for services rendered, products delivered, and technology in use.  The terms and conditions of these relationships were agreed to and need to be met.  Not when it is convenient.  Not when you feel it is time.  At the time and in the manner which was agreed.  If you cannot for a legitimate business reason – something has gone wrong or changed – then let them know.  Ask them to work with you.

Be honest.  Be fair.  Be upfront.  Be CAREFUL.  The employee who didn’t get the bonus which was earned and promised who finds out you are buying a boat or house with the “extra profits” from the business…The vendor who sees you driving the new luxury car to the new house…The customer who can’t get the refund check for the returned defective product…Well, they can ultimately decide whether your “temporary” cash flow issue becomes real permanent.

So what is going on?  It may be the economy.  It may a business downturn for that business.  It may be poor management.  It may be any number of things.  It is definitely frustrating and expensive.  Is it a growing trend?  Let’s hope not.

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