Overcoming “Big Customer” Contract Pitfalls 6 tips to help avoid them, and get paid on time
- May 31, 2017
- Posted by: Doug C
- Category: Uncategorized
That moment as a small business when you win a large contract supplying a big company, feels good, right?
I am not going to get into the rights and wrongs of it here, (that’s a whole different blog!) Suffice to say, big businesses forcing small suppliers to wait longer to get paid is now the norm. In some instances it can be as long as 90+ days, which has a crippling effect on cash flow, and the capability to fulfil a contract.
This is when saying ‘yes’ and figuring out ‘how’ later, could prove costly.
Here are 6 tips to help avoid the pitfalls and get paid on time:
- You may have 30 day terms, but never assume that a large business will abide by that. Do your homework and have the discussion about terms and conditions and accounts payable (AP) processes and procedures, as part of the sales process. Everything is negotiable but not if you don’t know about it in the first instance. Have the discussion first!
- NEVER send an invoice off and just forget about it and then wonder why the money isn’t in your bank account. Start chasing your payment before it is due, to get an agreed payment date. If deadlines are missed then taking a strong stance, such as threatening to withdraw labour or supply of further goods, can be appropriate and effective, but in the right way at the right time – threatening small claims court should be your last resort.
- The person procuring your product or services will be the one with whom you have the strongest relationship. How much influence and control they have over when and how you get paid varies from none at all, (worst case they may not even understand how their accounts payable department functions) to significant (they have the authority to override AP). Mainly it is in between. They are fully aware of the process and procedures and also know the get arounds, such as putting invoices in early. They also generally wish to maintain good relations with suppliers, so will act as your internal advocate and help with any issues. Often the easiest and fastest way to get anything resolved is to get them to deal with payment issues on your behalf internally.
- Try to find out who is responsible for actually triggering payment of your invoice within AP, get their contact details, and try to build a good professional relationship with them. When things go wrong with your payments, they are the ones who can resolve it quickly. I say ‘try’ because they may want to avoid having direct contact with suppliers. In our experience, if you go about this the right way it is possible over time, and it is effective. Be aware AP are tasked, targeted and often rewarded for protecting their organisation’s cash flow. It is their job to keep money in their bank account for as long as possible. When communicating with them, you need to go to their side of the table.
- There are many causes for missed or late payment. Here are some of the common ones:
- You are not a registered supplier or set up on the supplier portal in time for first payment.
- You did not submit the invoice and supporting documentation by the deadline.
- The person in AP who deals with triggering payments is off sick or on holiday, or it’s a Bank Holiday.
- You are in a sub-contracting chain and your customer hasn’t been paid by their customer.
Remove all possible barriers to your getting paid that are in your power.
- Do not allow your businesses solvency to be dependent on receiving these payments. In our experience, the most painful bit for cash flow is getting everything set up in the beginning. It can be hard work, frustrating and delay the first invoice payment. After that it tends to settle down and become more consistent as long as you stay on top of it, and keep communicating with your customer.