Dealing with Business Customers

[Bill George]

Most of my sales so far have been either local Retail cash or online PayPal. I have one wholesale customer I let run up a tab because so far she has always paid and the checks never bounced :). Now I seem to have picked up some local business who want to do the old 30 days net 10% whatever.... so far I have insisted on a check being presented when the item is picked up. Am I being un-reasonable?

Or should I just add on say 20% for those customers and let them pay off an invoice at the end of the month?

[Keith Downing]

Most of my sales so far have been either local Retail cash or online PayPal. I have one wholesale customer I let run up a tab because so far she has always paid and the checks never bounced :). Now I seem to have picked up some local business who want to do the old 30 days net 10% whatever.... so far I have insisted on a check being presented when the item is picked up. Am I being un-reasonable?

Or should I just add on say 20% for those customers and let them pay off an invoice at the end of the month?

From my experience in a couple different business sectors, most vendors expect payment on delivery these days. The main exceptions are businesses that know their goods will be resold (for instance our rubber stamp supplier has a credit application and 30 day billing), and those that are big enough they need their accounting department to be invoiced and have time to pay.

It's really your call if you want to offer "credit' to your commercial customers. Just remember, if the business happens to go under, you probably aren't getting paid. So maybe keep it to a reasonable amount. And if you don't think it's worth the hassle, don't be afraid to tell them NO.

[Robert Bonenfant]

We deal with mostly business customers and wholesalers - If its someone who does a high volume with us and has been a customer for a long time I dont mind offering them 30 day terms. Some of our larger customers have 45 day terms (Only two of our largest customer have this). I wouldn't extend credit to a small customer that orders once a month, only the customers you make good profit with and order heavily. In all it really depends on you and your cash flow - You dont want to extend credit if your business is going to suffer because of it ($10k in credit to customers means less money to buy supplies and machines.) Many businesses have credit cards, can apply for bank loans so there are other options for them without you being the bank and taking risk :-)

[Kev Williams]

About 95% of my work comes from businesses. Actually, let me count ;) ....

OK-- so far this year I've sold to 128 different customers
Of those 128, 20 of them are NOT business customers. The majority of the 108 are old and/or repeat customers, many of which supply me work almost daily...

so, 108/128 = 84.37% of my work is from business customers...

The percentage of income however, now that's a different story-- doing the math, business customers account for 98.93% of my income...
And right now I'm so busy it's almost frightening.

This has been true since my dad started this business, and as I've said before, we've never advertised. Since this business got rolling in the mid 1970's, we've been hit with non pays or bankruptcy's quite rarely. Say, half a dozen bankruptcies, and maybe 10 just plain no-pays. The grand total we've eaten has been less than $25,000, and $10,000 of that was one business. My last one was about 18 months ago, for $3300...

However, the $10k hit was not only a buyer but also one of our suppliers, and to this day I get my stuff at a pretty good discount. And the last bankruptcy, the company nearly doubled my old prices and paid COD while working for them during their reorganization, which happened about 8 months ago, and those prices are now standard.

So THAT all said-- If you got businesses knocking on your door, DO consider extending them net 30 days, at least :)

[Scott Shepherd]

Good post Kev! I'd add, what choice do you have? They have $30,000 a year worth of work, they WILL give it to someone. Do you want that $30,000 in your bank account or someone else's? If you want it, you have to play on their terms. You can make some counter offers if it's a certain size company, but in general, it's mostly good paying, easy, repeat work.

30 days is the price you pay to play in their market.

[John Lifer]

I think that all are valid points. My last company used amex as a payment option. Very few of the vendors I worked with would take it. Made for a lot of extra work to get them a check. I make some non laser items I sell almost exclusively to one vendor. I asked for 15 day terms and they hold to that. Over 10 years now. I wish I had 10 more than were as good! Id give them 30 day terms!

[Mike Null]

My business is much like Kevin's and I have a number of customers on net 30. For non-commercial customers, they have to pay with order. One of my better customers recently ran into hard times owing me about $500. I found out that they were in trouble by calling and finding that their phone had been disconnected. I called the art director on his cell phone and he explained what happened . The reason for my call was that they had just placed an order for about $100. I went ahead and completed the order and delivered it. My contact said how much they appreciated my filling the order and that they would prioritize my payment. Shortly thereafter I received a check for $400. A real surprise to me. They are struggling but still trying to save the business.

In 20 years I have lost less than $1000.

A new commercial customer contacted me a few days ago and I did advise him that payment was due on completion and that credit card payments were subject to a 5% handling fee. I didn't have a real good feeling about this guy.

[Robert Engel]

As I business owner (not ww'ing but principles are the same), you have to trust another business, but you can still get burned. Its just part of the deal. Like others have said, it doesn't happen that often, although IME certain businesses seem to think 60-90 days is SOP.

In my business I rarely use checks except for the occasional handyman everything is paid electronically.

Personally, I would be cash only for piecemeal or private party work.

BTW it is illegal to charge a service fee for credit cards.

[Mike Null]

It may be illegal but two gas stations near me do it and have signs advertising it.

[Matt McCoy]

It may be illegal but two gas stations near me do it and have signs advertising it.

You might also check into Visa and Mastercard's TOS for your state. From memory, there are special provisions to provide a discount to cash customers and and your surcharge for CC can't be more than you are charged or greater than 4%.

[Malcolm McLeod]

Easy to get around; lots of businesses advertise their prices (which I assume include the credit card surcharge). Then they offer a discount for cash or checks (around here its usually 5%).

[Tim Bateson]

I don't charge extra for CC, PayPal or setup fee (99% of the time) & I won't do business with anyone who does. I feel these costs are a part of doing business & anyone can properly price their services to cover this minor overhead. I'm too busy to nickel & dime my customers! I don't charge sales tax either... I do pay it, I just don't charge for it - on cash sales.


Added:... I Give online customers the option to pay for Priority Shipping. If they choose it great, if not then they get free First Class mail. For large orders even Priority is free. It's all part of my Customer Service Policy. Note - Most customers have no problem paying a Premium price for A1 Customer Service.

[Bill George]

This is Iowa. Very difficult to sell to small town people and farmers, even after they move to the "big city" they are used to cheap. Sure if you can come up with a trendy idea they might have seen on HGTV maybe. Cash sales I round it up to even money and I Pay the Sales tax because I don't want to keep small change around. Charge or credit customers don't get the Cash discount.
My wife tells me I charge to much, so be it. Let them go someplace else and get it done cheaper, but there is no one else :D

[Kev Williams]

As for charging extra for taking credit cards-- only illegal in 10 states — California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Perfectly legal everywhere else, but there IS a 4% limit. And you must alert the customer TO the fee if you're charging it.

--but who's to stop me adding in, or adding TO a setup fee?

But I don't charge a fee- good for customer service, and why bother? The extra income is taxable and just offsets (at least somewhat) the tax deduction on MY fees...

[Jeff Body]

As for charging extra for taking credit cards-- only illegal in 10 states — California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Perfectly legal everywhere else, but there IS a 4% limit. And you must alert the customer TO the fee if you're charging it.

--but who's to stop me adding in, or adding TO a setup fee?

But I don't charge a fee- good for customer service, and why bother? The extra income is taxable and just offsets (at least somewhat) the tax deduction on MY fees...

Florida???? really

Every gas station around me has a cash price and a credit card price. I've been burned several times because the CC price wasn't clearly marked.

Wonder how they get away with this?


Keeping on topic, I have some businesses that give me a check when they pick up their order. And then I have some that wouldn't do business with me if I didn't accept net 30 terms. I just try to use my best judgment.
What's crazy is I have a golf cart manufacture I deal with. My father-in-law owns a golf cart repair business and when he needs a golf cart part this company demands cash on delivery but when this manufacture orders their decals from me I have to accept net 45 terms. And boy do they wait to the very last minute to pay.

[Ross Moshinsky]

If you're going to have customers on terms I'd recommend:

1. Setting up their account so they have a max credit. You'll have to use your best judgement, but for example, I deal with a local golf club doing a lot of small orders and I had to cap them at $500 or $750. They'd never pay even after notification of outstanding debt. Finally had to say enough.

2. Always get a PO. This is the most important thing. "Hey, can I order 500 water bottles engraved with "God Bless You" is not an order. Get a purchase order. This is a vendor contract which basically means as long as you deliver, you have to get paid. It puts you on their books as someone they owe money to. While this isn't important for a $100 order, if you start getting some decent orders, you want to be on their books. I can't tell you how often some guy will order something on behalf of the company, never submits the invoice, and you're left chasing money 30 days after they picked it up. Chasing money is a waste of time.

3. We've looked at it more than once. While I'd love everyone to pay me on time via check or cash, it doesn't happen. I don't trust treasurers to pay on time and I don't trust accounts payable to pay me on time (assuming they ever got the invoice in the first place). If someone can pay me via credit card and it means I'm guaranteed to get paid, I'll eat the 3%. We don't have a cash flow issue, but getting paid at pickup or at the time of order makes following cash flow so much easier than waiting 30+ days for payment.

[Michael Hunter]

Ross makes very good points.

When a new business customer asks me for a quote, I always ask for payment on delivery for a first order but state that subsequent orders *may* be allowed 30 day's credit.

This is a pretty good stress test of the customer's payment system and if they pay up promptly the first time (almost all do) then I'm happy to give the credit time and where there are a lot of small orders also invoice monthly.

The one firm that flunked completely is still a customer : for a long while they were on payment in advance (not even working drawings until the money is in the bank), but they finally got their accounts system sorted out so that they get the 30 days, but normally pay much more quickly.

If I need to lay out significant cash on materials for a less regular customer, I ask for 50% up-front : that way I'm only risking my time. In practice I have never been refused and the balance has always been paid quickly following delivery.

[Kev Williams]

Florida???? really

Every gas station around me has a cash price and a credit card price. I've been burned several times because the CC price wasn't clearly marked.

Wonder how they get away with this?

Reminds me of how they do Bingo here in 'Gambling is Evil'-land..

Bingo for money is a game of chance in which you have to pay for Bingo cards for a chance to win--

---illegal----

But what if you DIDN'T have to pay for your Bingo cards?

---legal----

so where does the payout money come from? You pay $20 for a spaghetti or meat loaf dinner, and the Bingo cards are "free"...

---legal ! ----

oh, and if you want more free cards, just pay more for your dinner ;)

Not sure how the loophole works with the 'cash price/credit price' deal, but is more than likely a 'language' thing--
if you call it a fee or surcharge, illegal-- but since it's simply listed as a "price" - not unlike 3 for 99c Taco Tuesday - due to the language of the law, it's probably legal..

[John Lifer]

To make the gas price legal, it is a discount for cash. They may put up cash price, and machine set up for cc price but it is a discount for cash, not an add on for using a cc.

[Mike Null]

I really made a mistake in posting what I did. I've had one charge this week and didn't apply the surcharge. Almost all my business is by check so it makes little difference one way or the other.

[Nicolas Silva]

BTW it is illegal to charge a service fee for credit cards.

They are not charging a fee - they are "Discounting" for cash.

[Gary Hair]

I have a 3% "accounting charge" that I waive for cash customers...