It’s amazing how many people seem to think that it’s ok to delay payments to their suppliers. This is particularly unacceptable where the supplier is a small operator. In fact, it’s really crazy to think that it isn’t possible to buy something as innocuous a pair of socks or a coffee without paying at the time of receiving the goods yet a lot of people seem to balk at the idea of paying up front for a creative service such as photography work or web design.
Worse still it’s even more incredible to realise that there are people who don’t always bother to pay suppliers at all. Thankfully I’ve only experienced this issue once and the matter is not completely closed… More worryingly, over the past few years, I have heard a lot of stories of other people not being paid even after they have successfully delivered goods or services to third parties. I’m not sure if this is a uniquely Irish issue or if it’s a global issue — I’m sure it happens everywhere but this doesn’t make it anymore acceptable.
What can we do to avert this crisis? Small suppliers need to be tougher. Personally my attitude is that a percentage of money needs to be demanded up front with the balance due immediately on delivery of the good or service. The percentage of upfront money should be decided as a function of the scale of the purchasing company, the potential default risk and the amount of cost that has to be carried by the supplier to complete the transaction. This figure could include costs of materials used, equipment that needs to be rented or third party contractors that need to be drafted in.
From a practical point of view it’s important to make sure that you have properly prepared (legally compliant) invoices. Each country will have their own rules for what an invoice should include — here’s a list of what the Irish Revenue Commisioner’s (Tax authorities) require. I’ve also found that setting and agreeing clear payment terms reduces the risk of a lot of potential arguments. I’ve also recently written a post on the subject of Getting Paid Faster which you may also find useful.
In that post I discuss the invoicing software I use from a company called Invoice2Go. Not only does that app allow you to set payment terms, it also can be setup to automatically send reminder payment requests until your invoice has been settled in full. Note this is not a paid endorsement — I just happen to have so far had great overall payment administrative success since upgrading to this software.
Consumers have a role to play in this process too. We should all endeavour to only do business with people and companies that evidence a culture of strong ethics and values. Maybe this is easier said than done but please do try. Sometimes raising awareness helps to make people think and when we start thinking we become more aware of what’s going on. Ultimately greater awareness can lead to greater actions over time. Aggregate this process over a community or economy and there’s real scope for bringing about a positive change.
I’d like to call out Aldi (Ireland) who have harmonised their payment terms for small suppliers (annual business with Aldi of <€300k) to 14 days. According to Agriland.ie, Aldi’s payment terms were previously anywhere between 7 and 48 days. It strikes me that those previous terms weren’t that bad (7–48 days) but I’ve no idea how many people were paid at 7 and 48 days respectively or at other intervals within that range.
What I’m much more interested in is the fact that they cared enough (whatever the motivation) to actually implement and publicise such a system. This alone would make me want to move my grocery shopping to Aldi! So this is a great example of a large company better looking after small suppliers as well as a company that consumers can then support for the reasons I highlighted already — i.e., they have evidenced good ethics and values in how they do business with smaller suppliers.
What do you guys think? Have you ever been ripped off by a customer not paying you? How did you handle the experience? Did it ever get resolved? What did you learn and what advice would you share with others? Please either let me know in the comments or get in touch directly with me here!