[mwill]

Relating to cash flow and payment terms, my company (outside of tech) has a particularly large client (rev >$2B AUD, 10k employees worldwide) that has us on 45 days EOM, but accounts team won't accept an invoice without a ref#, which are given by the "receipting team" after site confirms work is completed

The mysterious "receipting team" is not in the main office, and has no phone number or even names listed, emails are never directly replied to, instead site contacts will call to relay questions/answers from them, ref# come from an automated do-not-reply email. They will quite often be "backlogged" and fail to send a ref# before the the end of the month, and suddenly will be cleared up on the 1st of the month.

We've had jobs that finished in the first week of a month, been ignored for 25 days, received a ref# with an apology for the delay on the 1st of the following month, get paid 45 days end of that month. So up to 100 days from completing work to getting paid. All our accounts are POS, 7 days EOM, or 30 days EOM, and must be paid on time or we lose supply. So to do a job with $100k of materials and wages for them, we have to have $100k spare cash for up to 60-100 days

It's not a cashflow problem, they're sitting on reserves and we're a blip on their radar, less than 1/10th of a percent of their outgoings

So we quote them outrageously high, and they never blink. I've told them some jobs would be up to 50% less if they paid quicker, and they've outright said they'd rather hold the cash and pay more. For a sense of scale we've invoiced them about $500k a year for the last few years, they've told me to clear out a couple weeks for two jobs that are nearly that much each, in February and April this year. I can't figure out who's getting the bad deal, them or me, I keep assuming they must have some massive upside I'm not seeing ¯\_(ツ)_/¯

[bruce511]

You're both getting what you want, but you are different businesses, so you are optimizing for different things.

In other words, you have a business of a certain size with a certain set of constraints and goals. For most small businesses the constraint is not enough money, and the goal is to make more money.

Naturally you see your client as a "big version of your business" and therefore you think they are optimizing to the same goals as you. When interacting with corporates this is a really common mistake.

What's really happening is that to them they have all the cash in the world. The difference between 30k and 150k is nothing. Literally nothing.

However they likely have incomings and outgoings totally hundreds of millions, if not billions, each month. When you move that much money some jobs are likely to be _really_ big, and doing it right the first time I'd important.

So they have a buying, and paying, process. That process is optimised for say 50M and up. But the process applied to all purchasing, they want 1 process, not 3 or 5 or 10.

Your tiny rounding error if a job is therefore irrelevant. Money is not the limit. They want to use their process. Andif you are happy to wait 100 days, then they are happy to spend more.

Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle. Since $1.50 is nothing, you're happy to pay more for no hassles.

Neither of you are getting a bad deal, and yes they are getting upside you can't see. You are playing to one set of rules, bug they have a very different rule book.

[B-Con]

This is an incredibly realistic and pragmatic take on how large companies work.

> You're both getting what you want, but you are different businesses, so you are optimizing for different things. [...]

> The difference between 30k and 150k is nothing. Literally nothing. [...]

> Would you rather spend 30c now, with a bunch of hassle, or $1.50 in 3 months time with zero hassle.

Anyone who struggles to understand why corporations do what they do should internalize this thought process. It explains a lot.

[qprofyeh]

So I assume if they hired someone cheap who’s only job is to manage OPs account payments, and they did this for perhaps 100 other accounts (manager per account), they’d still make millions profit extra, yearly? I indeed struggle to understand why anyone is leaving that on the table.

[rsj_hn]

Because administrative structures are not about hiring one more body to do random job X.

Each body in the machine needs a reporting structure, training, tooling, a career path, and be plugged into other structures that have visibility to and alignment with, senior management. So it's about trying to maximize the size of your company while keeping the complexity manageable. In a big organization, management is struggling for simplicity and visibility, and one technique is standardization of processes and alignment on goals and processes so that you have more than just a big bureaucracy doing thousands of inscrutable things, but you have a bureaucracy that management can understand, measure, and steer as best they can. This is the biggest challenge.

So they tend not to do things like hire one off people to do random things at odds with what everyone else is doing.

That means you do not chase every possible thing which appears to have some upside but adds complexity. Because following the latter approach is the administrative equivalent of "yes, we are an autobody shop, but people often come here hungry, so let's also sell them some pancakes" -- a decade of these type of decisions and you have a huge unmanageable mess.

Clay Shirky once wrote a piece in which ATT reached out to him for a business discussion about getting into web hosting, and when he told them how little he paid for web hosting, they were absolutely stumped at how anyone could provide reliable webhosting for a profit, and Shirky replied that his webhosting just wasn't very reliable. He tells them there is no staging environment provided, no failure, no offsite backup, no redundant power -- how sometimes he'd just take the main site offline when he wanted to update, and other times it would go down when there was too much traffic. The ATT folks just stared at him in disbelief. And Shirky knew that they weren't going to get into the web hosting business because a company can't both be good at doing one thing and the opposite of that thing at the same time. A company that has reliability in its corporate DNA isn't going to "hire a few guys" to create a cheap, yet unreliable offering - even if it means they are leaving money on the table.

[homeland221]

There are 2 kinds of businesses...one extremely profitable and another on dying path. If the company you're dealing with not dime nickel you sooner or later they will be the on the dying path. You can readup Nokia outrageous expenditure in Europe. Heck if they are dying or extremely profitable, just take advantage of it. It is business. Nothing personal.

[mathattack]

2 logical options:

1) They aren’t as fiscally sound as you think.

2) They’ve sub optimized and someone is looking very good for stretching payment terms at the expense of the rest of the company. Once they do this it can be hard to walk back as someone centrally has to justify more working capital.

[mwill]

I'm pretty confident on their soundness, they're publicly traded and I check up on clients lodgings when I can, to manage my exposure, they claim to be sitting on $400M in cash and $200M in minerals as of a few months ago.

Option 2 seems plausible, a couple years ago they had a bit of internal politics that we were caught in the middle of, the end result was changing the engineering requirements going forward over purely cosmetic issues, doubling the price of materials. One particular job we did in 2019 for $30k, was $150k in 2022, for the same exact end result for the workers, at the same site, right next to the previous one. The site manager complained, and I said if he got it in writing that they wanted to use the old engineering and disregard the cosmetics, it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.

[caminante]

This is business process dysfunction, and I bet their AP/AR spend management software was setup wrong.

They can try to spin it as a free loan from you or the ROI gain of running a leaning team, but they're paying 400% more (150k v. 30k) in a current reporting period.

Nothing clever.

You're also sticking around and not getting burned out of repeat business. I like increasing prices to compensate and being upfront.

[yellow_lead]

> it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.

ouch. This kind of situation could benefit from a cost savings program at that company.

[mikepurvis]

I'm genuinely curious at how a top-down initiative could succeed at rooting out this type of waste. Without empowering the cost savings to speak directly to the vendor, it's hard to imagine them being able to discover that paying a month or two sooner could get them non-FU pricing.

[caminante]

Running an RFP and benchmarking versus competitors would address this.

The problem is empowerment to question the officer who signed the deal and has the vendor relationship.

[mathattack]

Sometimes the cost and energy of the RFP means it’s only done for $500K or higher. An understaffed sourcing team has to focus on the huge deals.

[twic]

Does "lodgings" mean something like "filings" in Australian English? As in documents lodged with the official somebody or other? Or are you snooping on their houses?

[btown]

No idea about the original post, but property real estate values for customer addresses can be an invaluable signal for confirming potential fraud, in the presence of other yellow flags on a high-end consumer transaction!

[lazyasciiart]

Yes, you lodge tax returns with the ATO.

[HWR_14]

There are a lot of things within (2) that are still reasonable.

For instance, the contracting officer may have to fill out one form for a $500,000 project that they can approve, but approving any kind of different payment terms requires more levels of approval. Sure, it doesn't make sense in this instance, but maybe the rule makes a lot of sense with a far bigger contractor. As the OP said, they are a blip. Making rules that work well for 95% of the time and end up doubling the cost of the 5% is rational.

More options:

3) There are tax advantages to higher costs of services and lower costs of debt servicing that make it advantageous to pay more for a good with better terms.

4) It's literally not worth the time to optimize. They planned for this cost and it's a blip so who cares if it's double the cost. I mean, someone should care, but who actually gets the benefit. Think about it like not cancelling a subscription or not renegotiating every time a contract is up in personal life.

[theptip]

Both of these are reasonable guesses. A slight variant on 2 is that they are actually just a mess; lots of big companies have bad accounts payable teams. It’s typically not something where the CFO is measuring team efficacy based on supplier/vendor satisfaction. You could say this is another way of putting “sun optimized”, but it doesn’t even need someone to be actively trying to stretch terms (though that absolutely happens too).

[Mistletoe]

Is there a #3? Investors are paying for this inefficiency and the money is still coming in/there "for now"?

[chrisdhoover]

Or their accounting department is not great. Most accounting departments I have worked with were not great.

[Denvercoder9]

> I keep assuming they must have some massive upside I'm not seeing

My default assumption would not be that there's an upside in this for them, but that they're a disfunctional organization. The people procuring your services and authorizing the expense are not in contact with or unable to influence the people planning and authorizing the payment. They might not even share a superior all the way up to the board, with the procurement people reporting to the COO and the payment people to the CFO. If it's easier to spend the company's money than to save it, people will spend it. Corporate seldom rewards saving money anyway.

[dazc]

Based on previous experience, I concur. There are businesses with a culture of 'pay late no matter what' and this becomes the norm, regardless of logic.

I had a manager who could buy just about anything he wanted with no checks as to why he needed this stuff or where it went. The only control was the time period between delivery and payment.

[sokoloff]

If you can swing the cash flow, keep billing them at a rate that makes sense for your business. So many AP departments are incentivized on payment delays. Let them “win” their stupid game and just build the cost plus some extra into your rates.

[mwill]

Yeah thankfully we can swing it, but we've actually turned down some work for other clients here and there because I've done the math and figured there was too much overlap/risk with this particular clients jobs.

[bombcar]

This is why you don’t have to fire all annoying customers - just start raising the prices on them to insane levels

[ericlewis]

My grandfather referred to this as the "asshole tax".

[AussieWog93]

>I keep assuming they must have some massive upside I'm not seeing ¯\_(ツ)_/¯

There is a massive upside for the person you're talking to in accounts payable.

By making the whole tender process ridiculous, they get to hold onto their bullshit job.

I've found similar things when dealing with corporates. They'll never try to negotiate the price down, but they'll be damned if they don't get to rack up their Amex points. :)

The golden rule I keep in mind is that you're never speaking to a company - instead, you're dealing with a human.

[kccqzy]

This is an area where banks can help. A bank can loan you the money immediately after the job is done with a low-ish interest rate (since your client is publicly traded and reputable and presumably highly creditworthy) and then ask for repayment only when the 45 days EOM is up. Alternatively you just ask the bank for a fraction of the invoice amount upfront and not think about paying interest to the bank any more. It's called invoice factoring.

[cik2e]

That sounds like some good practical advice, but also slightly vomit inducing.

>> Economists such as Lord Adair Turner, the former chair of the British Financial Services Authority, have argued that innovation in the financial industry is often a form of rent-seeking.[24][25]

source: https://en.wikipedia.org/wiki/Rent-seeking

Do they not teach this stuff in an undergraduate business classes any more? "Float" was BIZ101 and in BIZ102 you learn how to read financial statements...

The "genius restaurateur" in the article rediscovered the art of not paying your bills with a credit card, i.e., the "debt trap".

[kccqzy]

> but also slightly vomit inducing.

It's similar to a payday loan, except for businesses. Maybe that's why the bad rep comes from. Of course with my personal experience the interest rate is nowhere as high.

[tgsovlerkhgsel]

Business payment terms, and more importantly their handling (read: usually ignoring) seem bonkers to me. I understand why net-something makes sense, but the apparently universal tendency to agree to a term then routinely pay an arbitrary time later seems crazy. I just don't understand how it became so normalized.

[kwhitefoot]

I suspect that it happens because of the asymmetrical power relationships between the customer and supplier. The suppliers are typically too small to have the option to sue. Perhaps the solution is to make this kind of breach of contract a strict liability criminal offence!

[ncallaway]

A better solution is to negotiate the late payment penalty in the contract itself, then just add the late payment penalty as a line item on future invoices.

Don’t put it on the invoice of payment is close to on time, and waive the first late payment (if the other payments are close to on time). When waiving it, put the late payment fee in the invoice and and another line item waiving it. In whatever communication channel you send the invoice, note that they had a late payment, and that since it’s the first time you’ve waived it.

[kwhitefoot]

That sounds like a neat solution. Much less confrontational than taking it to court or a collections agency.

[rahimnathwani]

"some jobs would be up to 50% less if they paid quicker"

Why would you give someone a 50% discount for faster payment? Is your cost of capital so high?

Maybe I can pay you advance (with the 50% discount) and then, 100 days later, collect 100% from the customer?

[mwill]

It makes no sense when you frame it that way of course haha, but it's only possible to look at it that way now that we've been working for them for several years.

When I started raising prices, taking a medium/large sized job from them was an huge risk. If I hadn't started hiking the prices when I did, We probably would have folded later that year when we did a much larger job for them, if I hadn't been stockpiling the extra cash from their smaller jobs.

It was an enormous existential risk early on when I had less capital to play with, now in a weird way I can look at it how you say: The company is loaning itself 50% to make 100% later.

That said, fair's fair so I'd still honor the offer if they asked: I don't/can't quote other clients that much, so if they wanted to pay on reasonable terms I would charge them reasonable prices.

[lencastre]

So you are financing your client. Same thing happens in the construction industry. Client pays 30 days after invoice (which can only be issued after an IPC is signed), then the main contractor pays all subcontractors 30 to 60 days after and their IPCs must VE proportionally to the Main Client approved IPC, in turn subcontractors pay material suppliers and equipment rentals after that. The only payment “on-time” are taxes and salaries, freelancers are treated as suppliers of course. In the Iberian Peninsula it wasn’t unheard of 180 days after invoice. And there is only so much you can blame on SAP.

[emptysands]

Cash can be both capital and operating funds. They may want to keep certain debt ratios and are not worried about impact on net income.