A company can go to a bank and ask for a few thousand dollars to be repaid in 30, 60, or ninety days. The bank will charge fees in return for the providing the money. That is the bank's business and how it turns a profit.
On the other hand, there are no fees if the company does not pay me for 30, 60 or ninety days and so it is economically rational for a company to improve cash flow by not paying me rather than using a bank. Worse, collecting delayed payment takes my time and energy and does not produce additional profit for me. Just additional work. Even worse, holding my payment creates cash flow problems for me that provide the company leverage to renegotiate for pennies on the dollar.
At worst, I have learned in one of the harder ways that I don't want to loan money in the form of delayed payment to businesses with cash flow problems. A company that cannot write me a check before the project starts does not have sufficient funds to complete the project. Better I forego fantasy profits and play the odds.
I get it now, was not clear earlier because the fees are not present in your case, so the analogy did not seem exact, though I did think about it before asking. Thanks for the detailed answer. Makes good sense. I've had a few cases like that too, as a consultant, and have learned from them.
On the other hand, there are no fees if the company does not pay me for 30, 60 or ninety days and so it is economically rational for a company to improve cash flow by not paying me rather than using a bank. Worse, collecting delayed payment takes my time and energy and does not produce additional profit for me. Just additional work. Even worse, holding my payment creates cash flow problems for me that provide the company leverage to renegotiate for pennies on the dollar.
At worst, I have learned in one of the harder ways that I don't want to loan money in the form of delayed payment to businesses with cash flow problems. A company that cannot write me a check before the project starts does not have sufficient funds to complete the project. Better I forego fantasy profits and play the odds.