I have a large company that I provide services to and they are a good customer. They pay 60 days net but often they go past the 60 days. I am tired of it because I have my money tied up in materials and want to start charging them a late fee. I have never done this so I am looking for advice on what is customary. Advice is appreciated

I'd tie it to the interest you are charged on the materials per month and maybe an admin fee.

Then for future quotes, I would simply raise rates to account for the longer payment cycle.

Identify those who pay late and increase their charges from the beginning.

ask them if they can pay in 45 days from now on. If not increase their rates. if you charge them late fees they will probably ignore them.

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I have a large company that I provide services to and they are a good customer. They pay 60 days net but often they go past the 60 days. I am tired of it because I have my money tied up in materials and want to start charging them a late fee. I have never done this so I am looking for advice on what is customary. Advice is appreciated

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I run into this ALL the time in my small business. First calculate the amount you are losing by late payment. Paying late is considered "smart business". Discuss the issue with whoever is in charge of sending out payment. It may take some effort. At that point in time tell them the problem and suggest a resolution.

Just adding on a fee invites problems. More passive aggressive behavior or finding a supplier who is cheaper. Remember ALL business is based upon interpersonal relationships to some extent.

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Originally posted by a1abdj:
Identify those who pay late and increase their charges from the beginning.

Yes. I vary my hourly rate based on many factors including client hassle factor. A habitual late payer gets quoted a renewal rate high enough that I cannot afford not to take the work. I am completely up front with my clients about this.

Last year I tripled my rate for a twenty-five year client mainly because they hired a new ops manager who was an absolute PITA to deal with. The result? My billed hours dropped to a third of what they were, but billings stayed the same.

My standard terms are net 30, but almost all my clients pay within a week or two of getting my bill.

Send the bill with the late fee factored in. Then offer them a discount for early payment.
Same thing, different approach.
If they still pay late you get the late fee without the potential ill-will.

As someone who works for a BIG company, don't always assume they can or will do anything about it. And don't charge a late fee which requires an amendment to a PO. If its anything like my company, it will never happen and only gives you a black mark. The squeaky wheel sometimes gets cut out of the procurement system because of the inability for many of the individual contributors in the system to make effective changes, especially for just one vendor. I can tell you with certainty I have quit using certain vendors because they can't conform to our procurement system.

Not saying you aren't justified, but I think there is a more tactful approach. That is, assume they will pay net 90, and adjust your fees accordingly. I can tell you as the individual who submits a lot of PO's, I make sure my vendors understand that when the check gets cut is outside my control, and to expect net 120 even if terms are net 60. If they start calling every day complaining after net 60, I find someone else. If they haven't been paid in 90, I'll start the arduous process of investigating.

I know it isn't fair, but it's also outside my personal control, and effecting change in a big company procurement system isn't a battle that an individual contributor (me), or any small business is going to win. Do good work, charge a good price, and just factor in that you'll be waiting longer than you want. Keep in mind, your competition is doing the same, and sometimes they know smaller businesses won't service the larger clients so they take great liberties with their rates. If your cost to borrow is 6%, charge them that upfront but bury it in your rates, not a line item. Sometimes big companies are blind to the fact that they can borrow at 4%, but their vendors are borrowing at 8% and because of their pay terms they have to adjust their rates.

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Originally posted by 220-9er:

Send the bill with the late fee factored in. Then offer them a discount for early payment. Same thing, different approach. If they still pay late you get the late fee without the potential ill-will.

I have done this. It worked just fine.

-2%/10, net 30 is pretty standard in some industries

Early payment discount. This works.

I had a project with the CFO of a very large corporation, the discussion of net 90 came up in connection with a $ multimillion payment to a much smaller custom equipment vendor who was really hurting.

I complained, the CFO said: they will be lucky to get it in 120 days. I asked why we would screw with them when they were our only source and could end up failing, he told me “that's what we do, it’s our nature”.

Remember Aesop's fable about the frog and the scorpion? Evidently the finance dept gets rated by how long they can stall vendors, even if the vendors end up killing the host.

Back in the 70's many of the wholesalers I bought from used a carrot & stick:
discount 2% pay within 15 days of receiving the merchandise,
Net 30 days
45 days & past, upcharge 5% or $x.
plus 5% each additional 30 days

Our suppliers give a discount for prompt payment. I suspect the "late fee" is worked into the original price, and the "discount" is a hoax, but it works.

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Originally posted by absolut18:
As someone who works for a BIG company, don't always assume they can or will do anything about it. And don't charge a late fee which requires an amendment to a PO.

Absolut18 tells it very well. I've seen it in my organization. We've got a contractor who does great work, and we (locally) can't get him a check (from the corporate accounting system) quickly enough. He has pulled the "if I don't get paid this week (for work I did four months ago), then I'm not going to be able to help you out of your bind next week" card. And in my opinion, he's fully justified for doing it. I can't control it, he knows it, and we understand each other well. But that understanding doesn't get his creditors and employees paid, and that's where the rubber hits the road. My quiet advice to him is like Absolut18's: upcharge appropriately, knowing that the check is going to take a while to reach your desk.

Thanks for all the advice. I think I'm just going to adjust the price a bit

I have a good customer like that, that is a large corporation and simply how they pay. I've tried pushing them and they can't pay any faster. They never complain about the price so I charge them a little more on labor and add 5% surcharge to every expense or money that I put out for parts or vendors over what I would a quick paying customer. They pay it.

One of my current projects was invoiced 1%-10 NET 30. They blew past the 1st 10 days and are coming up on 30 very soon. I bumped the invoice 10% when I sent it, so guess who's not on my priority list right now.