Why do so many large companies fail to pay their invoices — and how can you buck the system?
Congratulations! You’re supplying big business – so you’ve managed to negotiate your way through the tender process, the myriad of ISO nonsense, the regulatory checks, the sack load of paperwork, the contracts — all a result of the mindless meetings you’ve sat through, the investigations into your company, its background, checks on the makeup of your board (the split between minorities, women, the disabled, number of bald people etc), your policy on carbon emissions and recycling, your inside leg measurements, what car your neighbour drives… unless of course you managed to bypass it all with the help of a paper bag full of readies.
That was the easy bit. Now you’ve got to get paid.
Be prepared for your invoice to travel to departments you’ve never even heard of. There’s the Accounts Department, the Purchasing Department, and the department with no name that no-one’s quite sure what it does or why it exists — but be sure your invoice will be there for several weeks before being it’s returned to the Accounts Department where it will remain unpaid for some spurious reason. Internally it’s called the DoRE (The Department of Ridiculous Excuses). You’ll email Sharon, Brett and Duncan and will get a reply from none of them. You’ll put in several calls and eventually Sally will tell you it’s in the system and you’re on the next payment run — although she’s not quite sure when it is. You’ll never track her down again.
As you enter month three from the date of invoice, your customer’s CEO will probably appear in the press bragging about the huge profits they’re making and how they care about their supply chain and treating their suppliers as family. He doesn’t mention he’s not seen his family since Christmas ‘97.
Month 4 and your own cashflow is going down the swanny. You’re sleeping less. The overdraft’s touching its limit — and your customer wants to place another order, which you need but can’t afford.
What went wrong?
Actually, you did everything right. You played by the rules — but what you didn’t understand was that Big Business can’t — or won’t.
- Business Accounting Offices c. 1902
You may assume your customer has a state-of-the-art, cutting-edge, slick, shiny and efficient accounting centre, but the reality is, whilst many large businesses have evolved and grown, they’ve neglected to invest in their accounts department.
On a warm day, with the windows wide open, your invoice was probably blown across the room and landed between two abacuses, where it’s still sitting.
- Accounting Policy
Your contract said 30 days. Their order said 30 days. Your invoice said 30 days. The nice chap who placed the order promised 30 days.
Unfortunately, the company policy is 84.78 days
Nothing personal mate. Last year it was an average of 94.2 days (which was an improvement on the year before) and this year, they’re aiming to improve that by 10%.
Bear in mind — that’s average so you can fall either side of it. If you’re lucky enough to be paid on day 31, it means some poor bastard’s going to have to wait until day 125. Similarly, if you’ve had to wait 188 days, you can take solace in the knowledge that they paid someone somewhere instantly.
Top tip: Ask what their average debtor days are before taking the order (large companies now have to include this information in their accounts)
- Cost Centres
Your invoice has been assigned as capital expenditure — or sundry services — or whatever makes no sense to you. It makes no difference which department or budget you’ve been assigned to, what’s important is they’ve not over-spent in it. If they have, you’d better pray new budgets are released monthly or quarterly rather than annually or every millennium. Until then, your invoice will bounce around whilst everyone blames someone else for over-spending in the hope that by the time it comes to light, the new budget will be released.
- Cost Allocation
If your product or service is a small component in a larger project that your customer is in turn selling on, it won’t please you to find that often your invoice will only be released for payment once their customer has paid. If you happen to be supplying the last bolts required to hold the product they’re selling together, you’ll be waiting far less than the poor sod who supplied the first component. Either way, you’re taking the risk but getting no reward for it — and if their customer goes bust, (assuming your own customer can withstand it), it could take you even longer to get paid. This is doubly unfair. It gets even worse when you consider your customer’s not paying you because their Customer A isn’t paying them because they’re waiting for their own Customer B to pay them, who’s in turn waiting for their own Customer C to pay them — and that turns out to be you. Awkward.
When you visited your customer, you parked your shiny GLX next to Pete’s GL in the car park. Pete now hates you. He’s already tried everything he can to avoid you getting the order in the first place, but since he’s failed at that, he’s doubly pissed. Fortunately, he knows the accounting staff well…
- 0 or O
Their order number was 1O5XYDE3356 but you deigned to enter it with ‘O’ instead of ‘0’. Shame on you. Your schoolboy error has meant the invoice has been rejected and spat out by their systems — and worse still, you’re unlikely to ever get back into them. No one will ever spot the error, and frankly no-one can be arsed to, so expect a long drawn out battle whilst everyone blames each other (but mainly you).
- Broken Chain
Their accounts payable process may be a well oiled machine, but unfortunately, no one knew that one of the cogs has gone off sick/on maternity leave/off to Skegness. By the time they realise, your invoice could already be overdue. It’s worrying when you hear there’s a desk at the back of their office with a pile of invoices awaiting authorisation and payment. It’s where Ernie sat before he won the lottery in 1993 and never thought to tell anyone he wouldn’t be coming back.
Frankly, it’s better to wait it out than rely on the temp they get in to hold the fort for them. The temp will typically turn out to be as useful in an accounting office as a mime artist. To speed things up, it might be an idea to apply for the position yourself.
Frankly, no one can be arsed to pay. The most honest reason of them all.
- Bonus time
If you’ve ever wondered if Traffic Wardens get bonuses for issuing extra tickets, it won’t surprise you to find that often companies reward accounting staff for performance. It might be for maintaining debtor days (period taken to settle invoices), it might be for getting better settlement discounts, but whatever it is, if not paying your invoice gets them a new hole-punch, expect to wait.
- Going Bust
Surprising as it sometimes seems, big-business wants to continue in business, and therefore has to pay it’s suppliers. If, after everything has been taken into account (but not taken into your bank account), then perhaps they simply can’t afford to pay you. If you suspect this is the case, you need to act fast. If you’re making lots of noise or your action is going to interfere with their planned closure, they’ll want to shut you up quickly by paying you.
It’s easy to say you need to avoid doing business with customers who are likely to go bust — but there are clues:
You’re the only one left in your industry who will supply them
They don’t seem too bothered about the price
There’s speculation in the media
All the staff have left
Your turn up to their offices and there’s a “FOR RENT” sign outside
How to beat them….
First of all DO NOT offer settlement discounts. See my earlier article about why they don’t work — but in short, they’ll still pay late and because it’s not policed by a third party, they’ll still deduct the discount, leaving you with farty amounts to chase, and ruining any hope of future business when you do. If you decide to write them off, you’ve then got a mountain of admin to balance your books. Nuff’ said.
The answer’s Peasy 😉
When we setup Peasy, we looked at what motivates businesses of all sizes to pay their invoices. For SMEs it was Cashback and Avios rewards, for bigger business it was Retrospective Discounts (= Cashback) and charitable donations. It works. Try it.
Co-Founder & CEO
Getting Customers to Pay Quicker — and Love you for it