how to approach a slow paying-steady customer

[huggytree]

I have a great new builder. tons of projects and all high end for good money.

problem is they pay 30-45 days late on EVERY job.....im installing fixtures and finishing the job and havent been paid for the rough plumbing in many situations.(which is against my golden rule)

they do always pay in the end, but i spend time giving reminders every week. I started not to even mention it until its 30 days late....they claim to always be waiting for the homeowner to pay. like its not a big deal to wait for $5K-10K

I have a 2nd customer who also typically pays late..he's unorganized and a his jobs are full or problems...when things get busy ill be dumping him.

the main problem now is those 2 slow payers are the ones who are giving me 1/2 of my work....i cant lose them as customers, but keeping them is making it difficult to keep the cash flowing...im rich on paper, but at the end of the month i pay for the materials and fixtures on time, but wait 2 months to be reimbursed from these builders.....on a slow month its an issue....

im not worried about the '2nd customer' i mentioned above..he's not a very good customer for almost every reason...i know what to do with him...

but the 1st customer is golden except for the payment thing...she is a bit sensitive and very hard for me to read..sometimes i think she's angry with me and the next day she's my best friend...im not used to dealing with women as builders....how should i approach the problem with payment?...she told me once they were good payers...so i dont think she realizes that waiting 75+ days to pay me after im finished with a project is a bad thing.

if times were good id just say it and see what happens, but its not good right now and i have to be gentle and hold onto her as a customer

[Harold Mansfield]

Well....you can't lose the client so that's not even on the table.
I would just reiterate the payment policy and contract and tell her that it needs to be enforced and her payment schedule is unacceptable.

If she continues to claim it's out of her hands, then ask to speak with the person that is writing the checks and make them understand how it's going to be.

Offer to meet in the middle and offer to extend final payment until 15 days after completion, or break it up into weekly payments over a month.

You may also want to inquire about why its always late. Maybe they are also waiting on payment form something like a home owners policy that pays a certain amount for repairs...if that is the case, then maybe you could offer to accept what they have immediately, minus the difference paid for by the policy...and then receive the rest when the policy or warranty pays off.
'
If a client doesn't pay me on time it's usually a day or 2 late, but 30-75 days would drive me insane (unless otherwise agreed upon) and there is no way I could live like that.

You definitely don't wan to put a lean on a regular if there is a way to resolve the issue.
I think that you should be able to resolve this issue.

[billbenson]

I don't know about contractors in your field, but a lot of companies pay 60 or 90 days. Anheuser Busch has net 120 terms. I still take their orders. If you can support the float and aren't worried about getting paid, I'd just live with it. I'm still waiting for a $7k check from Nov. I'm not worried about getting it though.

[Spider]

I would like to hear something from the ladies on this forum, but here's my thought about it. Fire the second customer as soon as possible, or price the delayed payment costs and inconvenience costs into future bids for this contractor. If you lose the bid because you are too high, great! If you win the bid, you at least get paid for suffering the consequences.

Regarding the first customer - women work differently (not big news, but I think we would be wise to accept it and deal with the fact appropriately.) You can lay down the law with a male contrator but doing so with a female contractor would have a different result. You will make much more progress with a woman by talking to her about it.

Your approach should be to meet her in her office or take her for a coffee where you can sit down and talk. Explain how you are having difficulty meeting your bills because of her payment schedule. If you cannot pay your bills on time, you cannot get the best prices for materials from your suppliers and that will be reflected in the prices you have to charge her. Say you realize that she is probably having the same difficulty because the homeowner is delaying payment, but it doesn't help her to pass the delay entirely to you. Ask for her help in getting faster payment. Tell her what you would like to see happen and ask her if she can do that; if not, what can she do to solve this problem.

If she cannot help you, then your only course of action is to accept the situation, and if it is causing you additional costs, price those additional costs into your bids in the future.

I'd be interested in hearing what our female forumites have to say.

[Harold Mansfield]

I don't know about contractors in your field, but a lot of companies pay 60 or 90 days. Anheuser Busch has net 120 terms. I still take their orders. If you can support the float and aren't worried about getting paid, I'd just live with it. I'm still waiting for a $7k check from Nov. I'm not worried about getting it though.
You know Bill, a lot of companies do, do that..especially larger ones. I have always wondered if they have some kind of short term investment fund where they earn interest from their debits over a period of 30-90 days to make money on the money that they are paying out, thereby reducing their actual outgoing cash flow by a few percent.

But they can only add to the short term fund, the exact amount of the invoice, that's why they are sticklers about receiving the billing amount on paper A.S.A.P, but don't actually pay it until later.

Does that make sense to anyone? Is this what is done in the larger financial circles ?

It may not make much sense if you are talking about hundreds or thousands in operating expenses per month, but if you are talking about millions...I can see where a 30-90 day fund would offset some other costs.

[Steve B]

I'm guessing you charge them a penalty for paying late. If not, you need to start. It should be high enough that they are motivated to avoid it.

Otherwise, they'd be idiots to not take advantage of the free credit terms you are giving them. I always pay my credit card on the last day I can and still avoid a finance charge ... isn't that what you're supposed to do?

[huggytree]

builder #2 already pays a slight premium added onto his bill for being late all the time...once in a while he's early....he always says he's too busy and wearing too many hats...his customers are all completely nuts....i wonder if he meets them in a mental hospital or at AA meetings....never had 1 normal customer from him.

with women in charge you have to handle things very differently..you cannot be blunt and im a blunt guy....so its hard for me to ease it into the conversation...i like the idea of taking her out to eat to talk...she'd go for that...shes about 55ish years old and layed back.....she does have mood swings worse than im used to though (i married the most stable woman i could find after dating some women with horrible mood swings)....excepting the situation is probably the best idea...she represents 1/2 of the business this company does...she's talked about getting me in with her partner and getting the other 1/2....i dont think i want it....its sad...as time goes on we will become better friends and i can approach this issue easier..builders ive known for 3 years have all become good friends and i can say anything to them. I do things outside work with a few of them.


thanks for the advice...id also like to hear from some women?

[Blessed]

With some women you can be blunt. I think in this case your best bet will be repetitive. However... I have a client who always paid about 60 days out - instead of the 15 I ask for on my invoices. We've talked about it, they know I want to be paid quicker and I know I won't be paid quicker. It's a good client so I've simply decided to accept that they pay 60 to (sometimes 90) days out. I send an invoice at the end of the job, a reminder at 30 days, 45 days, 60 days and a phone call if I haven't seen payment by 75 days. I'm nice, friendly - it's a hey don't forget to pay me call.

the interesting point of this story is that when I decided to quit being frustrated because they paid so late and simply casually asked why they paid out as late as they did I got some standard hogwash answer to which I responded - that's fine, I just need to know so that I can budget for your payment schedule because I know you will be good for it and we went on our way. And lately... about 1/2 the time they've been paying me 45 days out, instead of the 60+ I was getting previously.

If it's a good client - decide that you are willing to work with their payment schedule and get on with business. Life is too short to spend it worried about some money that you know you will collect - just a month or two later than you would like to collect it.

You've asked for a woman's perspective here is mine... I don't mean to offend, but...
If I was that client and you came to me being insistent on me paying you according to whatever terms you want. I'd sigh and think something along the lines of typical man - thinks he has to have his way all the time and would go about my day as before - except that now I wouldn't think that you were the awesome plumber we'd been using, I'd be thinking that you were a good plumber but it might be time to try someone else that was a little easier to work with.

OK - that's my 2 cents - I definitely wouldn't count it as the opinion of the masses, but it's how I think.

[KristineS]

I don't think this is necessarily a male-female thing, there are men who would be offended by a blunt approach too. I think it's more knowing how to read the individual and figuring out the best strategy that would work for that person.

In this case, you know the lady is a bit sensitive, so the blunt approach probably will have the wrong result. I like the idea of asking her out for coffee and then casually discussing the situation. Frederick's scenario is a good one, and I'm guessing it's an approach that would work.

Women in general do tend to be more collaborative then men, so offering an opportunity to work together on the situation might be a better approach.

[huggytree]

men in construction are 99% the same...not man sensitive ones.....almost all of them are outdoors men... the ones who arent are typically tough business types...i work for women all the time(homeowners), but this is the first female contractor ive worked for.

the funny thing with many slow payers...when they call me they need me tomarrow...its like they dont see that what they expect from me and what they give me in return are opposites.

one of their jobs ($200) is 45 days late...the homeowner moved in 75 days ago....im going to have to call asking for payment tomarrow.

[rezzy]

I have had a similar problem. I have a big client, who could bring a nice payoff but they are slow to complete payment. Right now, I have a client who has expressed in urgency in completing the project, however has been slow to complete payment of the deposit.

[Blessed]

I was talking to one of the print brokers I work for and she told me that she has seen over the past year or so - her clients who used to pay in 30 days, now pay in 45 and 60 days has become the new "acceptable" norm.

It can be frustrating, especially when you have up-front expenses to cover.

[huggytree]

if i paid my suppliers in 60-90 days i would be on a cash basis after a few months..they need their money at the end of each month....so i pay out $5k-10k a month for fixtures and parts...then wait 1 to 2 months to get that money back.....im basically giving these customers a loan....we all should consider it to be a 'loan' and charge an extra 'interest' charge on all their bills....i typically think when you are a slow payer it means your almost going under...but with both of these companies i dont think thats true...i think one is unorganized and the other just runs the business that way....they probably figure it saves them thousands a year to use me and their other subs as a bank

on the other hand i have 1 new customer who shows up on the job to pay me before im even done...when there is a change order the difference is paid in 7 days

[DeniseTaylor]

Hi

I don't know if this will help you or not, but it's an idea.

What about giving incentive to pay on time or even early? Where you're at, it's like you don't have much power. You're at the point where you almost have to penalize to get this in line, but this client is very valuable to you. So penalizing could backfire.

So what if you worked out some way to give discounts (or credits) for paying early? I'm thinking you could build the cost of the discount into the pricing so you don't lose money.

I did this with my business and it worked very well. The client went out of his way to get the discount. I didn't build the cost in, I just took the hit. But it was worth it because I was losing as much or more waiting for their payment every month. It was causing me to be late with some of my vendors and it hurt.

It depends if you can cover the cost or take the hit, I suppose. But it's a much more positive way to handle it. And if the client really is waiting, perhaps there's some way you can pass the discount through to the homeowner. That's probably a stretch, but maybe there's a way to do it.

[huggytree]

if i added a 'on time' discount id have to eat it myself...because my bids have to be competitive and i have won bids by $7 on a $10,000 project every dollar counts..if i added extra money onto the bid just to give it back for ontime payment id lose a few more bids a year.

would i just offer this to the bad customers or all customers.?

is this a problem adding the incentive after the fact? or should this be a standard practice for everyone?

when you owe $10k is 1 or 2% anything to them?...it would be $100-200 out of my pocket on every large job......i do take the hit on doing a 'pre lien' on all jobs over $5000 already....its $40 and gives me more power...also lets the customers know i mean business when it comes to payment...

i will consider again the ontime pay discount....ive considered it 5x atleast over the years.

[Steve B]

"we all should consider it to be a 'loan' and charge an extra 'interest' charge on all their bills."

Exactly -

[Spider]

I think you are all losing sight of the problem and getting further away from a solution.

Problem: Delay in payment.

There are only three ways to get paid:

.. 1. Pre-payment
Some types of businesses can ask for and get pre-payment, payment with order, payment on commencement, or partial up-front payment in the form of a deposit or "to purchase materials" - roofing contractors, for example.

.. 2. Payment on completion
Some businesses can ask for and get payment immediately the work is finished - auto repair, for example.

.. 3. Payment some time after completion.
Most everyone else who hasn't established either of the above two methods of doing business.

The concept of charging interest on a loan for late payment is pointless and worse than useless. Even a 12% interest rate on $5,000 for 60 days is only $100. Asking for an extra $100 after the event is likely to annoy the payer to your detriment and still not pay for your time chasing the payment week after week.

When preparing bids for work, one should include all the costs of the job, including additional financial carrying costs, if such can be expected. If that makes you uncompetitive, then you must find ways to be more efficient. Simply ignoring known costs to make a bid competitive is the mark of an amateur and a recipe for business failure.

Alternatively, build your business around a different payment method - like asking for a deposit or prepayment.

[huggytree]

i had a talk w/ the builder today about the $300 that she's 75 days out on...she said she didnt even give the homeowner an invoice yet!!..she said she's still waiting for all the subs to get her invoices

and the $10k she is 30 days out on she says will drawn soon.

i think its crazy to not send an invoice quickly....

[cocoy]

What's her arrangement with the homeowner?

Is the homeowner suppose to pay her everytime a sub finishes or in one sum at the end?

Anyway I don't think it matters when she gives the homeowner an invoice since she's your customer. Your job is done and you should be paid. If she has to be paid first before you get paid, then you'll be waiting. I see this a lot in construction.

[Harold Mansfield]

i had a talk w/ the builder today about the $300 that she's 75 days out on...she said she didnt even give the homeowner an invoice yet!!...

That is just ridiculous ! Who does she think she is ? Who does she think you are?
How does she just take it upon herself to decide that you don't deserve to get paid in a reasonable amount of time?

I can see if such an arrangement was made before hand, but just to assume that she can take the liberty of her own sweet time with other people's money ? Especially if she actually has it!

That is out of line.
She can't pull that with any other company, why is she so confident in doing it to you?

[huggytree]

my contract is with her, not the customer....but she ties my money directly to the customer paying her....the problem is she takes her time billing the customer....who waits 75 days and hasn't even billed the customer yet?

i assume if the customer doesnt pay then i dont get paid....i use pre-liens on all her customers anyways, so im covered beyond her contract if i dont get paid.....i havent been doing it on jobs under $5k, but from now on i do it on all her jobs.