One thing that really annoys me is some larger enterprise customers’ perception of a smaller business and its ability to dictate the terms of business. I have talked previously that in this current economic climate businesses are trying to push supplier pay days from the standard 30 to 60 or even 90 days. And it is larger companies thinking that this is acceptable and more importantly that smaller companies will accept these terms in fear of loosing the business.
Firstly this should be a lesson to small businesses not to rely on just a few large companies as clients. Risk should be spread and while having a client such as Lehman Brothers might have been great during the good times it turns out to be not such a wise customer on which to base your business today. So I would recommend businesses review their top 20% clients and ensure it DOES NOT meet with the 80:20 rule. I.e. that 80% of your revenue is from 20% of clients. If this is the case then a real effort to reduce this should be made asap and that way when a customer comes back to you demanding greater pay days you will feel more like challenging it.
It is all very much a knee jerk reaction with very little foresight. What happens if your supplier goes to 60-days, you then go to 60-days and your client does in sequence. In the short term ie 30-days you don’t have to make payments but then afterwards you are no better off than previously. And after making this jump it won’t be easy to go back to 30-day terms.
My perception is always that you treat your suppliers how you want your company to be treated. It is a simple situation of running a business properly and anything less as far as I am concerned is not ethical. As such this means that 100% of Fluidata’s customers are within terms (no more than 30-days) and 89% of Fluidata’s customers accounts are within terms (30-days). Make no mistake it is not easy to get to such a high position with customers but by being firm but fair, and loosing the customers who consistently pay late it is possible to improve your position. Trust me this has a great long term impact on cash flow and hopefully if all smaller companies run their companies like this larger businesses will treat them with more respect (because they certainly don’t!).