Remember Joan Rivers? She used to ask, “Can we talk?” Now I’m asking – can we talk?
This might be sensitive to many of our clients. But I bet many other vendors, small companies such as ours, can relate.
Don’t get me wrong, we love our clients. And they all end up paying us what they owe. But here is what I want to discuss – why do some companies take so long to pay?
We state our payment terms as 30 days. But only 27% of invoices paid this year were within 30 days. 73% were longer. The average was 53 days. For you stats buffs, the median was 47 days – meaning half were paid within 47 days, and half were longer. I notice that some clients only pay after getting a reminder.
What’s the big deal? It’s all about cash flow. When you hear small businesses fail because of cash flow, believe it! You can be profitable on paper, but paper doesn’t pay the bills. Cash pays the bills. At any given time, we have over $400,000 in accounts receivable. That means money owed to us for work completed that we are waiting to receive. People call it “money on the street.” If we could collect more often within 30 days, that money wouldn’t be on the street, it would be in our bank account for us to pay our bills.
No matter when we are paid, we pay our respondents as soon as the study is complete. We think they deserve that. It keeps them loyal, and many need every dollar. But when we pay patients before we’ve been paid, you can see what it does to our cash flow. That is why we invoice for honoraria up front. But we still don’t get it right away.
Some of our clients say they can’t pay until their clients pay them. I get that they are also in a cash flow squeeze. But does General Motors not pay for its steel until after it sells a car? I think not.
Some of our larger clients state they have 60-day or even 90-day terms! And those with 60-day have said they pay at the end of the month after 60 days. So, it could be up to 90 days. Isn’t that a bit ridiculous? Interest rates are very low, please don’t delay payments to earn a piddly amount on the money you owe us!
So many of our clients talk about having a partnership. But a partnership means valuing our service and paying in a timely manner. I appreciate what one of our clients said – they always pay very quickly. They said they realize they are a smaller company, and if they can gain the extra cooperation of vendors by paying quickly, they think it is a good deal. I agree! Put your money where your mouth is when it comes to partnership!
Let me know what you think. Is slow payment a problem for you? How do you handle it?