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To Improve Cash Flow, Stall Payments to Vendors
All Reader Comments
page 1 of 5
Karen Stairs
Nov 6, 2009 3:06 PM GMT
My husband started a business just before the beginning of this recession, so he did not have time to build up reserves. Now he spends at least a couple of hours a week trying to get with people who have not paid their bills on time. That is precious time that he needs to be spending building his business, not worrying about people who arenâ??t minding their own business. And that doesnâ??t include the hours he worries and sometimes stays awake at night wondering how heâ??s going to keep HIS bills paid, since people arenâ??t paying him. We will NOT be delaying payment of our bills. And as far as landlords (and other service industries) are concerned â?? I hope a lot of landlords read this article. When my air conditioner went out this past summer at work, my landlord was on it immediately and it was fixed the next day. If I was renting to a business that had a habit of being 15-30 days behind, Iâ??m just guessing that when the air conditioner goes out Iâ??d say something like â??Well, normal turnaround on getting that fixed is 2-3 days. We should have you all fixed up in about a month!â??
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David Ej
Nov 4, 2009 9:36 PM GMT
It is your kind of advice and unfortunately, BW is implicated for allowing its publication as a principle to be followed, that is actually the cause the problem and not first cure. It lacks ethics, morality and is the reason the world is heading toward destruction since we are not learning the lessons of history but teaching our children, the new entrepreneurs, expediency.
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Dave Darby
Nov 4, 2009 6:24 PM GMT
Two problems I see here - first, this is not mainstream advice suitable for the faint of heart. This is hard-core business advice on how to survive. When it comes down to it, your concern should be more about your business' survival than your vendors. However, this is a mainstream publication so it's no wonder this is not being received well probably in part because we are all somebody's vendor in the food chain. We're probably more concerned with upstream taking this advice than ourselves or downstream.
Second, I think it was Rick who commented the same thought I had - $10M in revenues with 12 people. There's a rat here somewhere. Your payroll/benefits should not be exceeding 7% by my rudimentary estimates. If you're paying more than that, then you're paying too much in this market. So 93% in marketing, production, shipping, bank notes and real estate? It sounds to me like the only vendor here that you should screw is the real estate/bank notes, because clearly they screwed you first. What else could possibly consume over $9M in overhead per annum? Maybe they need an investor who can buy down that debt.
Still, a problem most of us would like to have.
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Squeezebox
Nov 4, 2009 5:36 PM GMT
This may seem rather obvious, but why didn't the bill paying company factor it's receivables? The banks are much tougher on customers than the selling company is. Also put non-paying customers on COD. If someone accepts your goods and does not pay, he's not a customer, he's a thief!
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ellen gunty
Nov 4, 2009 4:41 PM GMT
I agree with KJ. While the author has subsequently weighed in via the comments section on his article, let me say that defending his advice of â??passing the buckâ?? to the vendor in the context of this article he wrote seems a bit specious. Moreover, I think he misdiagnosed the problem spending too much time dispensing unethical advice instead of focusing on the heart of the matter.
While these people had a cashflow issue, this was a symptom of a greater problem, one more central to their business; they had a personnel problem. This not unusual. Mor than 80% of business problems are â??people problemsâ?? which is that the wrong people are doing a given job. Instead of suggesting unfair practices that hurt other businesses & potentially damage business relationships, the company needs a new person in charge of their accounting system. A more competent bookkeeper would go a long way towards turning things around for them. Why? It's easy to sit down & write checks to pay vendors but it's neither easy nor pleasant to go after outstanding collectibles. A good bookkeeper must be comfortable doing both.
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George Cloutier
Nov 4, 2009 3:49 PM GMT
Hi, it's George Cloutier, who wrote this column on paying vendors late. Unfortunately, small businesses in trouble do not normally have the cash flow to allow for on-time payments. Even after cutting expenses business owners have to make hard decisions as to which bills to pay -- payroll, accounts payable, taxes, etc. These are stomach-churning and painful decisions, but they have to be made. Most of the time slow payment is the only option to allow the company to continue. Telling your vendors the truth is always the best policy since the great majority will help you. Try to make some payments, but be candid about the truth. This is ethical. As a business owner you have to choose whether you want to survive or fold the tent. If your payment requirements are more than your incoming cash flow, truthfully negotiating longer terms and staying in touch with your vendors is your only choice.
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KJ
Nov 4, 2009 7:11 AM GMT
Delay payments to vendors, you're just pushing the cash flow problem on to someone else...a person who works to deliver to you.
You're telling them to make someone else suffer and not be able to pay their bills on time since they are no longer receiving timely payment.
And you have falsely stated that vendors will give in to the terms. I would fire my client if they tried that with me and replace them with someone who pays timely...the economy isn't that bad that we have to allow you to turn us into slaves.
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BAYODE, Olusegun Mikhail
Nov 2, 2009 6:44 PM GMT
Saying that the idea of delaying vendors payment is unethical is like flogging a dead horse. The entire process is a visious circle. If the vendor is not paid on time, by implication, he will also be owing his own suppliers. What makes business eciting is the ability to hedge againtst tactics like this. The vendor may decide to odffer his big customer discount for early payment. Alternatively he can decide to markup the contract cost by the financing charges covering the period of delay. There are ways vendors can also package bank guaranty to their favour. the options are inexhaustive.
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Marie Flatley
Nov 2, 2009 2:28 AM GMT
Recently I read that Amazon's earnings were much higher than expected, due in large part to their intentional delays in paying their suppliers. This practice of using suppliers and smaller businesses in a sense as banks seems unethical. I'm wondering if Quickbooks or other software can be set up to flag increases in delays so that small business owners can be on top of them sooner and not let them slide through the crack as they seem to have done here.
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Myra Dodick
Nov 1, 2009 4:33 PM GMT
Cloutier's comments are reminiscent of the protocol in certain ind. during the 70s, stretch payments to Vendors. Vendors are savvy & are aware of what is going on with their customers. They know which of their cust are a credit risk. Questionable credit not only impedes the ability to procure new suppliers but of equal importance, they lose their prominence at their existing suppliers. Extended payments raise the proverbial red flag. When in similar situations, it is not uncommon for the Vendor to request a copy of audited yr end and interim F/S. A Co this size will have one. Cannot get bank financing w/o one. The CM will assess the fin.situation. If it is deemed that this is a temp. problem, & the business is a viable going concern, then an agreement might be made for extending pymnt terms. It is not a unilateral decision of the purchaser to modify the pre-arranged pymnt agreement. A cust. w/rev of $10M and no cash flow indicates serious prob. As someone with 20 yrs of credit exp, I find Cloutier's comments very naive.
I also find it inconceivable that a business w/that revenue, does not have a prof.controller &CM. Where are the auditors?
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return to story
To Improve Cash Flow, Stall Payments to Vendors
All Reader Comments
page 1 of 5
Karen Stairs Nov 6, 2009 3:06 PM GMT My husband started a business just before the beginning of this recession, so he did not have time to build up reserves. Now he spends at least a couple of hours a week trying to get with people who have not paid their bills on time. That is precious time that he needs to be spending building his business, not worrying about people who arenâ??t minding their own business. And that doesnâ??t include the hours he worries and sometimes stays awake at night wondering how heâ??s going to keep HIS bills paid, since people arenâ??t paying him. We will NOT be delaying payment of our bills. And as far as landlords (and other service industries) are concerned â?? I hope a lot of landlords read this article. When my air conditioner went out this past summer at work, my landlord was on it immediately and it was fixed the next day. If I was renting to a business that had a habit of being 15-30 days behind, Iâ??m just guessing that when the air conditioner goes out Iâ??d say something like â??Well, normal turnaround on getting that fixed is 2-3 days. We should have you all fixed up in about a month!â??
Link to this comment
David Ej Nov 4, 2009 9:36 PM GMT It is your kind of advice and unfortunately, BW is implicated for allowing its publication as a principle to be followed, that is actually the cause the problem and not first cure. It lacks ethics, morality and is the reason the world is heading toward destruction since we are not learning the lessons of history but teaching our children, the new entrepreneurs, expediency.
Link to this comment
Dave Darby Nov 4, 2009 6:24 PM GMT Two problems I see here - first, this is not mainstream advice suitable for the faint of heart. This is hard-core business advice on how to survive. When it comes down to it, your concern should be more about your business' survival than your vendors. However, this is a mainstream publication so it's no wonder this is not being received well probably in part because we are all somebody's vendor in the food chain. We're probably more concerned with upstream taking this advice than ourselves or downstream. Second, I think it was Rick who commented the same thought I had - $10M in revenues with 12 people. There's a rat here somewhere. Your payroll/benefits should not be exceeding 7% by my rudimentary estimates. If you're paying more than that, then you're paying too much in this market. So 93% in marketing, production, shipping, bank notes and real estate? It sounds to me like the only vendor here that you should screw is the real estate/bank notes, because clearly they screwed you first. What else could possibly consume over $9M in overhead per annum? Maybe they need an investor who can buy down that debt. Still, a problem most of us would like to have.
Link to this comment
Squeezebox Nov 4, 2009 5:36 PM GMT This may seem rather obvious, but why didn't the bill paying company factor it's receivables? The banks are much tougher on customers than the selling company is. Also put non-paying customers on COD. If someone accepts your goods and does not pay, he's not a customer, he's a thief!
Link to this comment
ellen gunty Nov 4, 2009 4:41 PM GMT I agree with KJ. While the author has subsequently weighed in via the comments section on his article, let me say that defending his advice of â??passing the buckâ?? to the vendor in the context of this article he wrote seems a bit specious. Moreover, I think he misdiagnosed the problem spending too much time dispensing unethical advice instead of focusing on the heart of the matter. While these people had a cashflow issue, this was a symptom of a greater problem, one more central to their business; they had a personnel problem. This not unusual. Mor than 80% of business problems are â??people problemsâ?? which is that the wrong people are doing a given job. Instead of suggesting unfair practices that hurt other businesses & potentially damage business relationships, the company needs a new person in charge of their accounting system. A more competent bookkeeper would go a long way towards turning things around for them. Why? It's easy to sit down & write checks to pay vendors but it's neither easy nor pleasant to go after outstanding collectibles. A good bookkeeper must be comfortable doing both.
Link to this comment
George Cloutier Nov 4, 2009 3:49 PM GMT Hi, it's George Cloutier, who wrote this column on paying vendors late. Unfortunately, small businesses in trouble do not normally have the cash flow to allow for on-time payments. Even after cutting expenses business owners have to make hard decisions as to which bills to pay -- payroll, accounts payable, taxes, etc. These are stomach-churning and painful decisions, but they have to be made. Most of the time slow payment is the only option to allow the company to continue. Telling your vendors the truth is always the best policy since the great majority will help you. Try to make some payments, but be candid about the truth. This is ethical. As a business owner you have to choose whether you want to survive or fold the tent. If your payment requirements are more than your incoming cash flow, truthfully negotiating longer terms and staying in touch with your vendors is your only choice.
Link to this comment
KJ Nov 4, 2009 7:11 AM GMT Delay payments to vendors, you're just pushing the cash flow problem on to someone else...a person who works to deliver to you. You're telling them to make someone else suffer and not be able to pay their bills on time since they are no longer receiving timely payment. And you have falsely stated that vendors will give in to the terms. I would fire my client if they tried that with me and replace them with someone who pays timely...the economy isn't that bad that we have to allow you to turn us into slaves.
Link to this comment
BAYODE, Olusegun Mikhail Nov 2, 2009 6:44 PM GMT Saying that the idea of delaying vendors payment is unethical is like flogging a dead horse. The entire process is a visious circle. If the vendor is not paid on time, by implication, he will also be owing his own suppliers. What makes business eciting is the ability to hedge againtst tactics like this. The vendor may decide to odffer his big customer discount for early payment. Alternatively he can decide to markup the contract cost by the financing charges covering the period of delay. There are ways vendors can also package bank guaranty to their favour. the options are inexhaustive.
Link to this comment
Marie Flatley Nov 2, 2009 2:28 AM GMT Recently I read that Amazon's earnings were much higher than expected, due in large part to their intentional delays in paying their suppliers. This practice of using suppliers and smaller businesses in a sense as banks seems unethical. I'm wondering if Quickbooks or other software can be set up to flag increases in delays so that small business owners can be on top of them sooner and not let them slide through the crack as they seem to have done here.
Link to this comment
Myra Dodick Nov 1, 2009 4:33 PM GMT Cloutier's comments are reminiscent of the protocol in certain ind. during the 70s, stretch payments to Vendors. Vendors are savvy & are aware of what is going on with their customers. They know which of their cust are a credit risk. Questionable credit not only impedes the ability to procure new suppliers but of equal importance, they lose their prominence at their existing suppliers. Extended payments raise the proverbial red flag. When in similar situations, it is not uncommon for the Vendor to request a copy of audited yr end and interim F/S. A Co this size will have one. Cannot get bank financing w/o one. The CM will assess the fin.situation. If it is deemed that this is a temp. problem, & the business is a viable going concern, then an agreement might be made for extending pymnt terms. It is not a unilateral decision of the purchaser to modify the pre-arranged pymnt agreement. A cust. w/rev of $10M and no cash flow indicates serious prob. As someone with 20 yrs of credit exp, I find Cloutier's comments very naive. I also find it inconceivable that a business w/that revenue, does not have a prof.controller &CM. Where are the auditors?
Link to this comment
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