Net 60, Net 90, and other extortions

[Rhea]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

 

[Harry Bosch]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

I used to be a commercial banker. Longer terms are just a cost of doing business with a larger customer. The larger customers (Costgo and Walmart were the worst) can offer larger sales (and are sometimes willing to pay more). Higher margins (sometimes); higher sales. The return is that they want longer terms. I had many clients almost go out of business when they excitingly told me that they were going to triple sales by selling to costgo, but then wouldn't be paid for 90 days. Longer terms can easily bankrupt a business. I've seen it many times.

 

[Rhea]

Longer terms are just a cost of doing business with a larger customer.

And to me that says, “Getting your lunch stolen is to be expected when bullies have nothing to stop them.”

 

[Jarhyn]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

In some respects, it is really hard to design a policy around fixing such. The repeated abuse of a grace period needs to be penalized perhaps making grace period a rate limited system, such that failure exponentiates the penalty of the next failure?

Such would have to be legislated as a form of universal contract liabilities though, and essentially amounts to the government providing a credit system for businesses that focuses on how they shirk their invoices.

The lack of any legal threat available to adjust such asymmetric timings for invoicing is indeed problematic.

As it is, my husband is working currently as the third party merchandising rep for an international company which is branching into merchandize sales in addition to their other products and we are looking at collecting some 20-30k in fees on that deal just this year, with additional fees to be garnered when they refresh their inventory.

We have been waiting since December to see more than the sample fees, because they plan on doing a JIT order of the actual products some time after August.

The fact is, it can be really painful waiting for a big client to make good on payments for work, even if it's inevitable that they will pay the bill. I just hope our client doesn't pull any cheeky shit like that...

 

[Elixir]

When you’re growing a Company, terms on both the buying and selling sides are critical. Our last venture’ growth was entirely internally financed from cash flow until we started growing exponentially. Our first decent government contract required 90 day terms from delivery, while our vendors had us on 30 day terms. That left us high and dry for over 90 days, as we had to bring in materiel, then produce and ship the product before we could even start the 90 day clock. We’d have gone out of business if not for our bank. We set up a credit account that was automatically paid down with every daily deposit, and for several years it’s balance varied from seven figures in the red to six figures in the black. Eventually we built cash reserves that kept our finance costs down to near zero, but could not have gotten there nearly so fast without the trust of the bank.
The “problem” was certain sellers who not only demanded 90 day terms, but then paid late, tacking on fees for everything from “poorly labeled” pallets or shipping cartons, to unannounced ‘vendor sales’ to taking early payment discounts while paying late… REI was very creative with that crap - so much so that eventually we cut them off.

 

[Jarhyn]

When you’re growing a Company, terms on both the buying and selling sides are critical. Our last venture’ growth was entirely internally financed from cash flow until we started growing exponentially. Our first decent government contract required 90 day terms from delivery, while our vendors had us on 30 day terms. That left us high and dry for over 90 days, as we had to bring in materiel, then produce and ship the product before we could even start the 90 day clock. We’d have gone out of business if not for our bank. We set up a credit account that was automatically paid down with every daily deposit, and for several years it’s balance varied from seven figures in the red to six figures in the black. Eventually we built cash reserves that kept our finance costs down to near zero, but could not have gotten there nearly so fast without the trust of the bank.
The “problem” was certain sellers who not only demanded 90 day terms, but then paid late, tacking on fees for everything from “poorly labeled” pallets or shipping cartons, to unannounced ‘vendor sales’ to taking early payment discounts while paying late… REI was very creative with that crap - so much so that eventually we cut them off.

I hear a lot of horror stories about REI being shitty and abusive.

 

[Harry Bosch]

When you’re growing a Company, terms on both the buying and selling sides are critical. Our last venture’ growth was entirely internally financed from cash flow until we started growing exponentially. Our first decent government contract required 90 day terms from delivery, while our vendors had us on 30 day terms. That left us high and dry for over 90 days, as we had to bring in materiel, then produce and ship the product before we could even start the 90 day clock. We’d have gone out of business if not for our bank. We set up a credit account that was automatically paid down with every daily deposit, and for several years it’s balance varied from seven figures in the red to six figures in the black. Eventually we built cash reserves that kept our finance costs down to near zero, but could not have gotten there nearly so fast without the trust of the bank.
The “problem” was certain sellers who not only demanded 90 day terms, but then paid late, tacking on fees for everything from “poorly labeled” pallets or shipping cartons, to unannounced ‘vendor sales’ to taking early payment discounts while paying late… REI was very creative with that crap - so much so that eventually we cut them off.

Funny. The exact same issue with my company. The number one issue that puts bankrupts existing companies is growth. Running out of cash due to terms. One of my most important relationships is with my banker. I currently have a $700k LOC. It's probably rested half the year. But when we are into it during busy season, I have to have it. Our standard customer terms are 30 days. But we're considering a new customer that would require 60 days. That's a big hit on working capital. Still considering. We're going to increase our price a little to compensate. But it also depends on our bank increasing our LOC to at least a million. I just put together detailed projections and working capital analysis. BTW: you brought up a good point that the government often requires the most onerous terms! 90 days or even longer are typical for government.

 

[Harry Bosch]

Longer terms are just a cost of doing business with a larger customer.

And to me that says, “Getting your lunch stolen is to be expected when bullies have nothing to stop them.”

Well, I didn't mean to offend by sounding flippant. I get your feelings! I was more saying that generally companies that require stretched terms have something to offer better distribution, more customers. More long-term profit. In my case, the company that we are talking to requiring 60 days terms could allow us to double in size. Which sounds good. However, a key mistake that a lot of companies make is that profit does not equal cash. It usually lags cash. In my networking group, I have a friend who sells to the government. The government is giving him 180-day terms!

 

[Toni]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

I used to be a commercial banker. Longer terms are just a cost of doing business with a larger customer. The larger customers (Costgo and Walmart were the worst) can offer larger sales (and are sometimes willing to pay more). Higher margins (sometimes); higher sales. The return is that they want longer terms. I had many clients almost go out of business when they excitingly told me that they were going to triple sales by selling to costgo, but then wouldn't be paid for 90 days. Longer terms can easily bankrupt a business. I've seen it many times.

Yes, but isn't that different than what Rhea is talking about? You're talking about loan rates. I would presumably get a better loan rate if I applied for one if my credit score and tenure with the bank exceeded Mo's who just moved to town with a bad credit rating. I know that banks extend better rates to large corporations (or to small corporations if you live in small towns), at rates that might be more favorable than the rates that an individual might get for say, home improvements. Although, I think that's probably a bit backward: the bank would have an easier time collecting from me from the sale of my home if I defaulted than from Walmart for...anything.

What I think Rhea is talking about is if I, as a supplier, supplied some Product Line A to Walmart or Costco at $X and billed them $X, they would take 60 or 90 days to pay me. Whereas, customers would be paying WAlmart or Costco full price in order to walk out of the store with Product A. And if they used a credit card, they'd get to pay interest on that but Walmart or Costco has been paid in full (minus any charges the credit card company takes).

Compare this to Amazon, who out and out insists on paying pennies on the dollar for Product A, under whatever terms Amazon has deemed favorable to them. Because Bezos wants to start a Mars colony now, I suppose.

 

[Elixir]

I hear a lot of horror stories about REI being shitty and abusive.

Yeah they have a rather high opinion of themselves, and within their niche it is well justified. But we had to say screw their (outdoor retailer) niche and amped up our direct-to-end-user sales for which we were paid immediately and in full. That may have hurt them a little, but not so’s they’d notice.

 

[Swammerdami]

Note that Trump gets away with "30% off and we'll think of paying in 90 days. Otherwise take us to court, sucker."

So the general practice is widespread and we might feel grateful for anyone who doesn't pull the Trump grift. IIUC "net 60" is common: Vendors will expect it.

I've never really been involved in business but I did operate for years as a freelancer, sometimes needing to interact with Purchasing. Being small-time and cooperative I was always — except with one client — paid promptly. (I worked for one guy who liked to say "See if Paula in Purchasing will give you satisfaction." She looked like she could, but I was too shy to even ask if she had a boyfriend. Anyway she always smiled and delivered checks promptly.)

The exception, Mr. P, would be . . . a long interesting story. For a while I would do Field Trip #N for him, but only after demanding payment for #(N-1). I wouldn't be paid for #N until he needed me for #(N+1). I ended up sueing Mr. P for a smallish sum. After great tedium — I ended up despising my two lawyers more than my anger against P — I won the lawsuit. But Mr. P then contacted my lawyer, offering 80% of the judgement. (We took the offer to get it over with.)

 

[bilby]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

I used to be a commercial banker. Longer terms are just a cost of doing business with a larger customer. The larger customers (Costgo and Walmart were the worst) can offer larger sales (and are sometimes willing to pay more). Higher margins (sometimes); higher sales. The return is that they want longer terms. I had many clients almost go out of business when they excitingly told me that they were going to triple sales by selling to costgo, but then wouldn't be paid for 90 days. Longer terms can easily bankrupt a business. I've seen it many times.

Yes, but isn't that different than what Rhea is talking about? You're talking about loan rates. I would presumably get a better loan rate if I applied for one if my credit score and tenure with the bank exceeded Mo's who just moved to town with a bad credit rating. I know that banks extend better rates to large corporations (or to small corporations if you live in small towns), at rates that might be more favorable than the rates that an individual might get for say, home improvements. Although, I think that's probably a bit backward: the bank would have an easier time collecting from me from the sale of my home if I defaulted than from Walmart for...anything.

What I think Rhea is talking about is if I, as a supplier, supplied some Product Line A to Walmart or Costco at $X and billed them $X, they would take 60 or 90 days to pay me. Whereas, customers would be paying WAlmart or Costco full price in order to walk out of the store with Product A. And if they used a credit card, they'd get to pay interest on that but Walmart or Costco has been paid in full (minus any charges the credit card company takes).

Compare this to Amazon, who out and out insists on paying pennies on the dollar for Product A, under whatever terms Amazon has deemed favorable to them. Because Bezos wants to start a Mars colony now, I suppose.

It amounts to the same thing.

You are being forced by your customer to wait for your money, so while you are waiting, you either stop operations because you can’t pay your suppliers and your workforce; Or you borrow the money - typically via a line of credit on which you must pay interest.

How much interest, is in principle a function of how likely your banker thinks it is that the customer will eventually pay up, and when he expects that to finally happen. Which is essentially a credit rating.

 

[Toni]

When large companies “set their policy” to pay their bills at net 60 and net 90 (“we will pay you 60 or 90 days after you invoice us, every time) it seems to me that it represents a form of greed and bullying that should have public outcry.

It is a large entity stealing the lunch money from a small entity, because they are strong enoough to force it.

It is a large company STEALING 60 or 90 days of interest from the income of a small company. They are using their size or position to demand a part of a separate income stream. They are skimming of the top. “Nice shop you got here, be a shame if something happened to it.”

I would like to see legislation that prohibits a company from demaning interest payments from someone they owe money to.

Thoughts?

I used to be a commercial banker. Longer terms are just a cost of doing business with a larger customer. The larger customers (Costgo and Walmart were the worst) can offer larger sales (and are sometimes willing to pay more). Higher margins (sometimes); higher sales. The return is that they want longer terms. I had many clients almost go out of business when they excitingly told me that they were going to triple sales by selling to costgo, but then wouldn't be paid for 90 days. Longer terms can easily bankrupt a business. I've seen it many times.

Yes, but isn't that different than what Rhea is talking about? You're talking about loan rates. I would presumably get a better loan rate if I applied for one if my credit score and tenure with the bank exceeded Mo's who just moved to town with a bad credit rating. I know that banks extend better rates to large corporations (or to small corporations if you live in small towns), at rates that might be more favorable than the rates that an individual might get for say, home improvements. Although, I think that's probably a bit backward: the bank would have an easier time collecting from me from the sale of my home if I defaulted than from Walmart for...anything.

What I think Rhea is talking about is if I, as a supplier, supplied some Product Line A to Walmart or Costco at $X and billed them $X, they would take 60 or 90 days to pay me. Whereas, customers would be paying WAlmart or Costco full price in order to walk out of the store with Product A. And if they used a credit card, they'd get to pay interest on that but Walmart or Costco has been paid in full (minus any charges the credit card company takes).

Compare this to Amazon, who out and out insists on paying pennies on the dollar for Product A, under whatever terms Amazon has deemed favorable to them. Because Bezos wants to start a Mars colony now, I suppose.

It amounts to the same thing.

You are being forced by your customer to wait for your money, so while you are waiting, you either stop operations because you can’t pay your suppliers and your workforce; Or you borrow the money - typically via a line of credit on which you must pay interest.

How much interest, is in principle a function of how likely your banker thinks it is that the customer will eventually pay up, and when he expects that to finally happen. Which is essentially a credit rating.

This is true of small businesses but major companies or large banks certainly have plenty of money coming in. Plus they get to invest the cash sitting in the vault (up to a certain amount).

 

[laughing dog]

There is a difference between being unable to guarantee payment to suppliers with X days and just waiting X days before remitting payment.

I strongly suspect Rhea is referring to the latter not the former.

 

[Rhea]

Yes, thanks LD, I am absolutely talking about large companies DECIDING to wait on payment so that they can get an extra month’s interest on the cash, while depriving the rightful owner of the cash getting interest payments (or being able to use it as operating cash.).

I am indeed talking about a decision to delay payment simply to take the interest earnings for oneself, even though the money is rightfully owed to the supplier who made something for you.

 

[TomC]

I am indeed talking about a decision to delay payment simply to take the interest earnings for oneself, even though the money is rightfully owed to the supplier who made something for you.

What about suppliers making the decision to accept the terms in order to get the sale?
Factoring the terms into the price and deciding to sell?

Why do you seem to think that suppliers are ignorant and oppressed?
Tom

 

[laughing dog]

I am indeed talking about a decision to delay payment simply to take the interest earnings for oneself, even though the money is rightfully owed to the supplier who made something for you.

What about suppliers making the decision to accept the terms in order to get the sale?
Factoring the terms into the price and deciding to sell?

What does that have to do with the notion of fairness?

Why do you seem to think that suppliers are ignorant and oppressed?
Tom

The OP specifically points out LARGE COMPANIES which suggests that their size gives them some market power over their suppliers. That has nothing to do with ignorance or oppression and all to do with having market leverage.

 

[Alcoholic Actuary]

Is it due to an accounting rule? I know that in insurance you can count receivables as an asset until it is 90 days past due and then there is an associated penalty you have to carry as a liability. The extorters probably consider it their money until the smaller guys actually have to book the penalty for the collectible?

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