Now Or Later? | PPB Mag


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Now Or Later?
By: Staff
Issue: 2009sep

A Distributor Asks:
For years I’ve been putting 50 percent down on an order and paying the balance when the products arrived. Now this supplier wants me to pay 100 percent up front. Should I just consider this a sign of the times and comply, or should I take my business elsewhere?

Lee McCubbin
Co-owner
McCubbin Trophy & Engraving
UPIC: mctrophy
Any sign of the times is reflected on the customer’s end as well as the distributor or supplier end of things. Cash flow and/or credit is tight for everyone. That may not be any different no matter where you choose to do business.

I would ask myself some serious questions. What kind of relationship do I have with this supplier? Has it met or exceeded my expectations and needs in the past? Do I trust that it will continue to meet or exceed my needs and expectations in the future (with or without the new payment request)? Do I like the company and its salespeople? Do I want to start all over with a new supplier? I would also ask if this is a temporary adjustment or a permanent change in payment policy.

If I was incapable of paying 100 percent up front I would ask if there were some other arrangements that could be made, such as 50 percent down and payments on the balance due to achieve full payment by delivery. This relieves some of the stress on both sides. I have learned that often times there are payment cycles with clients (especially schools and governments). If the bill is not submitted by a certain date you have to wait for the next cycle to receive payment. This could be a week or two or even a month. It makes a big difference in my cash flow.

If I can give the client his or her final bill during the current cycle, payment is much faster and I don’t need 100 percent up front because I know I will have payment within a certain number of days and can plan my finances accordingly. If you have a payment structure that uses a cycle let your supplier know what it is. Ask him or her for the final billing before the end of the current cycle to ensure prompt payment. The supplier can take comfort in knowing exactly when to expect the balance, and you may be able to continue paying 50 percent on placed orders.

If something can’t be worked out that helps both companies, or if they are unwilling to even discuss alternatives, then I may be tempted to go elsewhere with my business. If I did go elsewhere I would be aware that I am starting all over with a new company and I have no idea what to expect. I won’t know how (or if) they will meet or exceed expectations or if they will even value my business beyond this order. It could be a positive change, or it might not be.

In this business we don’t just supply products. There are five other guys down the street who can do that. We provide services and build relationships with our customers. We do that so they continue to do business with us and know they can count on us in tough times. We, in turn, know that we can count on them.

Remy Fenster
Owner
RJF Marketing
UPIC: rjfmkt10
I would call the supplier first and get an explanation. But to me it sounds like the supplier has come upon hard times and I would be concerned your order may never get produced.

Most businesses reward customers by extending credit. This vendor seems to be doing the opposite. Unless it offers something unique or you have some other reason for being loyal, I’d say it’s time to find a new supplier.

Bill Turney, MAS
Executive Vice President
The Augusta Group
UPIC: AUGUSTA
It is a supplier problem and a distributor problem. The supplier may be too close to the edge for me to want to pay in advance. If it needs the money that badly, then I would have grave concerns about dealing with this company.

In an economy where too many people are nervous and trying to cover themselves it is easy for a well-meaning distributor or supplier to get hung out to dry. This is why Stand By or Pay on Delivery letters of credit were created. Another option is if the distributor has a credit card with a large enough credit line and the supplier is willing to accept and the delivery is within the return period. But don’t just pay in advance because the supplier is trying to reduce accounts receivable. I would not want the financial hardship of the supplier to shift over to the distributor.

Laura Forbes, MAS
President
Zebra Marketing Corporation
UPIC: ZEBRAMC
Since a 100-percent deposit has not been required on previous orders, I would consider it a sign of the times. But I also wouldn’t pay the entire amount without some due diligence.

First, have a conversation with the highest level of management you can get to at the supplier to find out why there was a change. Second, reach out to some friendly competitors to see if anyone else has had a similar experience with this supplier. Ask them if the goods were delivered on time and of the quality expected.

You should be able to judge if there is a problem based on what you learn from these conversations. If your instinct indicates your order and money are at risk, look for an alternate source.
Brad Langton, CAS
Owner
Lip Snax, LLC
UPIC: LPS1
It is precisely because of this unprecedented and protracted recession that many suppliers are requiring payment up front. My reasons are slightly different. I am a small-business owner and cannot afford to carry paper for an extended period of time. I have been taken advantage of when offering terms. It’s happened often enough that I now ask for a credit card to process the order up front. I encounter almost no push back.

Most distributor customers are in the same boat. They experience difficulty gaining terms from suppliers and have been forced to submit credit cards or checks for pre-payment. They understand. In fact, last month a customer told me she preferred using a credit card to tracking the paper along the process of the order. My reasons for asking pre-payment are now compounded by this economy.

I am not large enough to absorb many late pays. Suppliers and distributors must band together to ride this storm out. My advice to the distributor who feels indignant at having to pre-pay for an order is: Don’t assign ill will, misplaced intentions or greed to that supplier who is asking for full payment up front. It’s the reality of the marketplace we’re in. Some long-standing suppliers are feeling the sting of the economy. Some are simply new start-ups and cannot risk losses from disreputable distributors. Regardless, this is a time for prudence and following best business practices.

Rod French, MAS
Consultant
Quality Resource Group, Inc.
UPIC: PBPLINC
I would certainly evaluate the supplier relationship and look for alternative sources.

If you have been putting 50 percent down and paying on terms for years, it is hard to understand why you would not be on open account status with this supplier. Have you talked with the principal or the accounts receivable departments to request that status? In difficult economic times, suppliers may tighten credit to protect against bad debt, but they may also try to use distributors to cover their own cash flow problems.

The distributor/supplier relationship should be mutually beneficial. Ultimately, we both have one client: the end user. On the surface this relationship seems heavily slanted in the supplier’s favor.

A Supplier Asks:
I did everything I could to resolve an issue a distributor had with an order, but the distributor still posted a negative criticism about my company on an industry website. What is best in the long run, responding to the comments on the site or leaving the matter alone?

What’s your answer? E-mail answers along with your name, title and company name to Question@ppai.org by September 30 for possible inclusion in an upcoming issue of PPB magazine.

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