"They just earned a price increase for whatever they want to buy from us."
Seems like the most appropriate response. If you are going to be a bank for them, add a premium for that...
Requiring 90 days is at the far end of common practice.
Pro Focus LLC | 10/27/15 05:27pm
I have heard that the Big 3 (Ford, GM, and Chrysler) all have a similar, if not longer payout schedules. I don't think it is as much of an issue if you know going into a given project, but to have terms changed mid contract is wrong.
IPVMU Certified | 10/27/15 06:27pm
1. Yes, it's unreasonable.
2. It is starting to become more common.
I think short term it will save them a little bit of money until more people start catching on to what is going on. Eventually more service providers like you will start doing what you propose to do, to tack on a certain percentage as bascially a "finance charge".
I've had the same from a client, though fortunately not that long an extension.
Even worse, they build in a 2% discount if they paid on time (ie 30 days).
I discussed it with my personal contact at the company, who also said to raise prices - as already suggested here.
Still, this is a big cash flow hit, which can be hard.
I am always negotiating terms off the default contracts, even for public companies. (So far, I've been successful at all but one private company, which I walked away from.)
Maybe when you negotiate your next contract, e.g.
*Raise your prices 10%, offer a 5% discount if paid within 30 days.*
This still allows them their default 90 day payment.
You are just giving them a sweetener to pay early (ie on time)
And they get free press out of it, JCI is winning!
IPVMU Certified | 10/27/15 06:50pm
Welcome to working for big multinational companies! They have the clout to pull stunts like this, and they know that there is not a big penalty for them, because at the end of the day, future projects will be compatibly bid, and if you want the project, you will do what you have to win the project.
In another lifetime I worked for one of these behemoth companies and I can tell you that we would not tolerate the slow pays by our customers that we were imposing on our vendors.
My advice is: put them on credit hold. If they need your services, they will reach into their stash and find a way to pay you, despite what some company bureaucrat says in a form letter. If they can unilaterally change a written contract, then they leave you with little alternative.
To put it bluntly, it is breach of contract. You can either put them on credit hold or terminate the contract. You have to decide how important their business is to you. We don't know your circumstances. If you allow them to "have" net 90, you won't see the money for at least 90 days, more likely longer than that.
Many years ago, we did regular subcontract work for a large national construction contractor, installing CCTV systems for a major retailer's new builds. At some point, we'd finished a job, and the accountant submitted our invoice; after 60+ days of no payment, our owner contacted them, only to be told they now had a "180 days net" policy.
We'd always had a good relationship with them (this customer really liked us, which is why we got pretty much all their sub jobs) and they'd always paid promptly before, so of course, our owner proceeded to take a strip off whoever he was talking to... and was informed that as a small business, we "didn't understand how these things worked". Of course, as a small business (the owner, his wife, and two techs), such a delay could have been devastating.
I don't know how many more people up the chain got torn new ones, but I know we did very, very few jobs for them after that. Oddly, we still kept doing jobs for the customer, through other large contractors... one wonders if a number of other sub-trades ran into the same problem and simply refused to deal with that GC any more.
That is interesting karma, as they just unilaterally received an updated price list at 30% higher than every other national/global intergrator. One percentage point for every extra day of their new payment intent. Interesting how that works. Happy to be their bank now!
We have recently decided to no longer do business with the large companies that are stringing us out 90 -180 or more days PLUS retainage that always somehow becomes open ended. The big companies are nothing more than contract vehicles and we're the guys stuck in an abusive relationship. We end up being their bank while assuming all the risk. In our case it's not worth the agravation.
It was shared with me this week that two national companies have just gone through significant reorganizations. Along with reorganizations often come internal discussions around what they could be doing differently. Someone in A/P must have had the idea to slow down payables and bingo you get the letter. I know these guys at JCI purchase a lot of product and are seen as a world glass organization but turning to the Walmart school of business should cause them harm but, it won't. Manufacturers have set aside business principals and replaced them with greed and JCI will most likely get away with this. It's up to the manufactures to take back control of channels.
The Bigger the co. the worst the payment policys, and the more subs in the tree the later the payments.
We have many national accounts which have a you get paid when we get paid policy or when we really need another job completed.
We also have a client related in with JCI which is a billion dollar co. which pays in 45 days no matter what, by the time the company we sub for gets the payments its 90+ days.
They Require a 30% upfront discount to contract with them and usually a 90 to 120 day payment terms. others have said it took 6 months for payments
With a very low overhead it works for us. But what about the large employee overhead companys I can only imagine the financial outlay to take on this work.
We have had payments extend to almost a year for payments .
But the nice thing is we make premium scale in the process.
usually double the industry average. You have to know what your into to play the game.
I have many friends in this industry who went broke after chasing the accountants around with out getting paid any sooner .
Good knowledge of what to expect in the process
Also WATCH OUT FOR systems integrator companys who want ( non competes) for all companys to give you a few bytes of work , Recently turned down a non compete which would negate our ability to work for a ton of larger major players.
and then not really great pay to complete thier work.
In my country Net90 and Net180 are the common form of payment for retails, banks, goverment, etc... And also you'te lucky if they respect the date...
With interest rates at historic lows, how big of a benefit is this to companies like JCI? Surely, banks will lend them money at very low rates.
Yes, JCI profit margin is quite minimal, but the savings from interest free loans provided by one's suppliers cannot be that large, especially factoring in the negative side effects (like higher pricing and potential delays) that result from this.