Freelancers and consultants: Watch out for slow paying clients
Interesting story in the April 17 Wall Street Journal. It seems that large firms are slowing payments to product and service suppliers to improve cash flow, to the detriment of suppliers.
The lead example in the story is Procter & Gamble, which is extending payments to suppliers by weeks. Other companies named as seeking to extend payment terms include Kimberly-Clark, Energizer Holdings, Newell Rubbermaid, DuPont and J.C. Penney.
P&G currently pays bills on average within 45 days, which the WSJ lauds as superior to the more typical time span of 60 to 100 days practiced by P&G competitors and other large companies. P&G is expected to increase payment terms to 75 days.
At the same time, P&G is working with banks that will advance payments to suppliers after 15 days. Of course, there will be a fee. Experts call this a win-win since the smaller suppliers would pay higher interest rates for borrowed funds than do the giants. True, but it would be a bigger win if they paid no fees to obtain prompt access to the money they have earned.
In an attractive graphic to illustrate a very simple point, there’s what WSJ calls the “old way.” The old way means that the supplier invoices the manufacturer directly and is paid in 45 days.
Then there’s the “new ways,” in which the supplier waits 75 days for full payment or the supplier can choose to have the bank pay more quickly, with the bank trimming its payment to the supplier to meet its own fees.
Isn’t progress wonderful. It’s kind of like making phones smaller or getting a man on the moon or finding a cure for cancer or something. And I so appreciate having a visual to explain it.
The article goes on to explain how some suppliers refuse longer terms, even if it means losing business, or else they increase what they charge.
Missing from the story are freelancers, consultants and other small service businesses. People like us.
I’ve experienced slow payments myself. Occasionally the longer terms are spelled out in advance but other times clients simply postpone payment longer than anticipated. Not good.
It’s ironic in an age where payment is easily speeded up via Paypal and similar electronic services, as well as FedEx overnight check delivery, that payment terms are extending.
It is equally as important for solopreneurs to negotiate prompt payment as to assure sufficient fees.
Here is a link to the full article, which provides more info on how this practice benefits companies: “Firms Pinch Payments to Suppliers.” After reading the article, look at the comments. The comments are meaty and add insights to the original story.
Originally posted 4-22-13