15 years ago, I made a change. I fired every customer who did not pay on time. Business is much more enjoyable dealing with reputable customers. The only customers I have lost in the last 15 years are customer I do not want to do business with. Sounds harsh, but works beautifully.
John that was fantastic! We have taken to not offering terms for customers that do not have a certain volume of work for us, and it is a pretty high threshold (relative to my industry). We generally do not stand in their payables office and tap our foot to get paid on the spot, but the invoice reads "Payment Due on Receipt". For the customer's that do qualify, we limit terms to 15 days, and we generally do not bid or work for government entities. We invoice the same day via email, so there is no built-in delay waiting for snail-mail to get a paper invoice to the right place. More and more companies have been using the hyperlinks in our emailed invoices to pay with a credit card, and we view the fees as a cost of business and write it off accordingly. It has been good for us, cashflow is consistent.
We once eventually had to get a court judgment issued over non-payment from a bad customer, it locked their bank account on payday, Boy did they pay-up fast. We once got full payment, big $$$, then the payment was "clawed back" due to bankruptcy court. It was Chrysler-related. We negotiated it down from the full amount, but that still really hurt. Also, Never give terms to international customers. No practical way to ever collect.
Great video once more! My ex-biggest customer used to delay payments from 6 months to more than an year. I start reject their inquiries or giving them a 100% advance payments terms and kinda work for a while. I think they assume their behavior was not very ethical. Anyway other important factor that John missed is what parts are you machining for your customer? Are they some easy parts that everyone can do or more precise and delicate work? Believe me, this matters the most!
This was really helpful, thank you so much I am 20 years old and I run a company (OCTOPUS Automation and Consultancy) of small to medium size Custom Mechatronic machines and Automations and being a very very small start-up I have been struggling with Account Receivable. It would be really awesome to have some more detailed videos of specific strategies used in these cases like Xomatry pay. Thanks again
Municipalities are some of the worst to deal with, they inevitably always seem to have some issue with invoices, a county in Florida we were a vendor to would wait until their internal "pay date" when all the checks were issued to try to resolve some minor problem or "perceived" problem that inevitably caused the payment to be issued "next month on check day", it was needless to say a pretty sour situation considering they would owe typically $5-8K in product/materials and another $1500 or so in shop service, we were a tiny operation with limited operating capital, they were stunned when we chose not to renew our agreement with them to be a supplier, the only way was going to be C.O.D., they balked and I felt a weight had been lifted off of me. We did however have a couple of other small businesses for customers, they were great, mostly paying upon delivery, the few times they asked for "terms" it was only a few days as they too had limited operating capital but they were religious about payment. Had the machine/fabrication shop for 15 years, overall it was a decent living but when we sold it it was a great day not to have to deal with people in general.
Good topic, John. A couple things I'd add. Even for a small business, use a Purchase Order with your customers and make sure you are OK with their terms. Most companies that have an accounts payable department process invoices as they are received. They have to so they get their accounting right. If they are just not paying, even after they have agreed to terms, either raise your price to recognize the cost of capital, or don't do business with them. Regarding terms - there are different types of terms that sound similar. You can be "Net 30" a lot of different ways. Is it Net 30 days Date of Invoice? Or Net 30 Date of Receipt? Also, be careful of using 3rd party solutions. You need to carefully weigh the cost of their service with the time value of the money. And for a purchaser, a 1% discount for payment in 10 days is worth about 18% on an annualized basis, if I remember my accounting class example correctly. And above all, as Kurt Tedford notes - FIRE YOUR BAD CUSTOMERS! If you have people stringing you out, and your margins are slim, you can be losing money on every transaction due to the cost of working capital. There is a cost to borrow money, and a lost opportunity if you are not paid on time and invest the money in your account. When customers pay on time, you have the opportunity to invest your excess cash, even at today's meager returns.
I don't own a business, but I did learn some things. As somebody who writes up a lot of stuff (no PO's, but the forms that get turned into PO's), this is helpful to know what's going on with the other side of the fence.
Having spent waaaay too much time in academia, I think it's not that people in academia think they don't have to stick to terms (well, they probably think that, sure, but that's not the issue). It's the mind-boggling bureaucracy around purchasing at universities. You would not believe how many people touch a single purchase, and most of them have no sense of urgency, or importance. I have no idea how those structures grow in the first place, but believe me, they are just as frustrating for the folks in the trenches, who buy stuff to do their work. That doesn't help you as a business but it may explain why you get paid late when dealing with universities...
Having worked in/with academia for long enough to get burned, I can offer some additional insights into the extreme silliness that can be involved in academic purchasing. 1. Many grants and university budgets are tied to specific uses with restrictions on how money is spent. This can range from the reasonable to the mystifying. For example, a budget for undergraduate education may be restricted from contributing to equipment purchases that will also be used for graduate education. Research grants are almost universally divided into budgeted amounts that require the proposal writer to (guess) estimate what "equipment" (items that depreciate, usually >$2000 or $5000) will be required and get special permission from both the university and the grant agency to buy the equipment. Grant agencies also hate budgeting for universities to buy equipment, they want the universities to already have the equipment. 2. As equipment gets larger, requires more power, needs remodels to accommodate, etc., an academic has to get permission from more people in the bureaucracy. You plan to get a CNC machine that requires 3 phase power, needs air filtration for safety (maybe for real, or maybe just for the school lawyer...), needs a heavy duty floor pad to set the machine up on, etc., you now need to get sign off from your department head, the college head, the research grant office, the campus architect's office, the campus electrician, etc. At any point in this process, which can take months before and after the grant writing and decision to buy, someone can raise a show stopping flag. I had one attempted small/medium purchase that ended up taking seven and a half months just to nail down all of the required meetings. I would estimate that about 75% of equipment purchase attempts never even reach full write up as the professors just bash their faces against the bureaucracy. 3. Most research grant agencies rewrite their proposal rules every year or biennium. The same happens for university spending rules. This happens for multiple reasons, but can usually be boiled down to changes in state and federal laws regarding spending, changes in rules from the state and federal Depts. of Education, and rule changes in response to whatever news story has run most recently about a professor misusing funds. The rules WILL change all of the time, and frequently in counterproductive ways. 4. The bureaucracy (mainly the research office and school lawyer) has to go through all of the state and federal rules on spending to ensure that a proposal/grant budget complies with the ever changing rules knowing that a small addendum to a rules annex in a 250 page proposal guide is the difference between the school getting/retaining the grant. So they are very nitpicky about seemingly small details. The real nightmare of everyone involved is for a grant to be secured in hand and then the rules change preventing major and critical purchases needed to execute the grant work. For example, a new overhead charge on non-US purchases increases the cost of a particle sensor purchased from Germany, making the purchase more than the grant budgeted for, and the rest of the budget is locked into funding research assistants' tuition and hours, lab tech salary, etc. Now what does the university do? 5. Professors are busy people and staff are frequently away for training. I have lost track of the number of productive days/months/years lost to people being away from the office for conferences, meetings, and trainings. Department heads and college heads are frequently away at conferences, legislative events, professional society meetings, donor events, etc. Staff have similarly busy schedules or staff are part time, but still need all of the same trainings so they are away disproportionately more of their working time. I would say 15-25% of the time one or more of the critical budget authorizing authorities is away from the office. Email and ubiquitous wifi have alleviated some of this problem, but it still frequently added a few days to okaying purchases.
@@timberwolfd1334 amazing summary of the horrors that lurk in academia. Very close to my own experiences... Another insight from the point of view of a lowly research assistant. Say you want to buy a Thing. It's not super expensive so you don't have to do the whole sing and dance around getting multiple quotes or even putting it up for tender. You enter the RFQ into your ERP system (and we all know that EVERY such ERP system sucks in new and innovative ways). Now say you know it's a one or two day delivery service and you want to get the item soon. So you message your prof to approve it right away. Then, you hoof over to Stores, make some smalltalk with the person who does the order, and then ask them kindly to process your order, like, right now. They do the purchase, you go back to your day. Next day, you go back to Stores, make some smalltalk again, and ask the ordering person to check the order and give you a tracking number. Then, you wait until tracking says it's here. You then hoof over to Stores again, ask the receiving person for your package. The receiving person will vehemently deny ever having seen, much less received your package. You then show them your tracking with their signature, and they go away and produce your package. You sign whatever scrap of paper is on hand (and better bring your own pen or you lose another five minutes of your life to wait for them to find one), and make a run for it. If you don't follow those steps, a next day delivery item will "arrive" (i.e. be in your hands) about 2-3 weeks after you enter the RFQ. Another fun experience was starting employment with a new university, complete with moving to another country and the associated expenses. It took Finance two months to process me and send me the first paycheck. Which, by the way, was hardly above minimum wage, so working in academia is just no fun.
@@sebastiansteiner5108 Don't remind me of receiving. The number of times I had packages spend a week or more traveling a quarter mile (400m) from the receiving building to my office building was stupefying. I have to give honorable mention to the UPS/DHL/Fedex people who could get stuff to my office building on the delivery day. The USPS had to deliver to the university receiving dock and then packages would disappear into "the system". Speaking from the professor side of things, my university let us apply for purchasing cards and use Amazon for small stuff, which made so many things better for everyone. But the fixed purpose budgets were still a major pain, since the "supplies" category was never big enough if you were keeping the budget competitive and actually paying yourself summer salary. We could also get small ticket equipment on the purchasing card if we had budget approval to purchase it. The cold hearted move the bureaucracy would throw in on small purchases was overhead. (Almost) Everything you spent had overhead charges tacked on to the purchase. It doesn't take much purchasing for a 50% overhead charge to eat a budget category. Buy that $10 widget on Amazon, get $15 charged to your budget. It's like constantly having rats biting you. No one bite will kill you or even seriously injure you, but, by that 400th bite, you don't have any blood left to bleed. Getting back to the original point of sticking to terms, I would have loved to have had the authority to do anything related to terms. I simply had zero power/authority in that regard. I had no influence in the process at all once the decision to purchase something was okayed. At that point I was every bit as frustrated as any supplier dealing with procurement. The part a vendor doesn't see is that I could easily have been fighting for a quarter to get the purchasing department to cut the order in the first place. The horror stories I was lucky enough to only be a bystander for... At least all of my purchases were cut in the same quarter I put them in for. One of my colleagues had a four month battle to get the vendor okayed for purchasing from, then a two month battle to get the order issued, and another four months to get the order corrected for a typo purchasing made that changed the sensor ordered to a different type that looked the same to the [expletives] purchasing agent. I don't know how long it took for the vendor to get paid in that mess.
This is a FANTASTIC video. I’m an engineer who recently has also had to wear a Project Management hat and this was a really educational video to help bridge the gap from engineering-manufacturing-shipping-and finally getting paid. Thank you!
How it is possible to wait payment for 30-120 days? Here in Russia i must pay in 3-10 days for raw materials and nobody will produce parts without 100% advance payment.
A very good video and informative. The one thing about government is that they will pay you. Not only that but in order to place an order,the funds have to be available. However things can be sped up. I always encouraged vendors to send the invoice with the goods; that way we could approve payment usually within one or two days of receiving the goods. Policy was to pay 30 days upon receipt of invoice so the best way to speed that up is to get invoices in on time. Generally government departments spend less on average than most contractors, so in order to ensure good relationships with suppliers, we tried to make things move as smoothly as possible.
I just checked, we have a customer who pays 75 days late on average. They always book the PO a month minus a day after we send it, changed the payment terms to net 60 even though we've agreed net 30, and still pay 15 days late. I spoke to our contact there, and they admitted it was standard practice for all companies they purchase from. I informed the head of purchasing that I'd be adding 15% to their subsequent bills, as I was assured that it would be at least a quarter until money would hit the account. They said that was fair, and that's the way we've worked for 2 years. Large corporations are insane.
Really interesting insights, thanks for sharing! I have a small specialized tech company (Europe) and we had similar issues in a few cases (fortunately rare). We push for prepayment now wherever we can (except academia where it's mostly not possible). Funnily, it seems (anecdotally) that "Net 30" is really uncommon in Asia. We've sent quotes with net-30 terms to China and Korea, and they always wired the full amount instantly together with their PO, upfront, unasked. I was wondering if anyone knows if Asia commonly does prepayment only, so they didn't even realise it's net-30? The few customers we had to chase for 6 months were from US and Northern Europe (they paid eventually after a lot of nagging...). Important not to be prejudiced :)
I believe it's a Cultural thing in China. It seems like they don't want to owe something. They reject taking tips. Their whole system is completely different. I worked there for 2 weeks and it was life changing. That experience was a big factor in starting my business. -Ken
I had a guy that worked for me that spent a few years in So Korea, he mentioned this custom (paying upfront) more than once in conversations I was having about people dragging their feet to pay, he also said the Koreans expect "on time" delivery too, quality was important but they ranked delivery as an integrity issue slightly above quality, being late without a genuine reason out of your control just would not fly.
It depends on business sectors. Here in China,Generally, Net 30 is good, Net 60 is not bad, Net 90&120 acceptable for big customers like Fortunate 500. For EU/US customers, usually some upfront, balance before shipping.
I have dropped in on a customer and demanded payment from the Payables person. She called the boss and said "This guy is sitting in my office and he's not leaving until he has a check". She put the boss on the phone with me and we had a discussion about the situation. His final jab was "If you are going to act this way we won't give you any more business". We had only done this one job for this customer and they were trying to stiff us. Got the check, fired the customer
As someone who works for a school (K-12), Our procurement process is an absolute mess, None of which is within our control. There are so many rules around it. The state is way more worried we might be stealing/embezzling/giving out preferential PO's than that our vendors get paid on time.
The state is too worried about creating a new tax to create even more cash flow for the next year. Now that Biden is in, I will recommend the right to breathe tax for everyone and soon we will be just like England. Your are doing a Great job people, keep up the good work!!
Factors buy accounts receivables at a discount and then collect from your customers. In the age of e-commerce, computerized accounting software and online payments, I think it’s less common, especially when banks are willing to lend funds for working capital. If you go that route, be careful when credit markets tighten. Great video.
I see the looooong payment terms in the service industry. 30 days seems to be the unicorn these days. 90 and 120 day pay are very common. Seems the larger the company, the longer they take to pay.
Send the invoice as early as possible. You don’t have to deliver the product before you send the bill. For products it may be hard, but for services like where you have a long contract with fixed cost each month it works.
My father taught me something about late payers... be nice and get them on COD terms then they are your best customer... it has worked for me for years...
@@dmiasesores cash on delivery... let me elaborate a little more. What tends to happen is you have a customer that gets late on their payments... they often times are in financial trouble and you have a choice of saying pay up or I won't ship anything more... they usually will just find someone else to do the same thing again to you loose a customer and you may loose your money as well. Instead I would suggest working out a deal where they pay a little on their old bill each week... usually on a credit card and they COD (pay when you ship more product) again I like to use credit card even though there is a fee because you can run the card and get the money just before you ship... when you get your money the same day as you ship they really become your best paying customer.
Wanna hear ridiculous thing: I own a large brewery in Nj, and we are obligated to provide credit terms to retailers. BUT, if they don’t pay, *we* are at the risk of a fine from the regulating agency. Yep, read that again. We have to provide terms snd we get fine pad if they don’t pay. Liquor laws are bizarroworld.
Net 120?? Seriously? Wow... just... wow. Depends on the business sector I guess, never came across that fortunately. Maybe should try that on our suppliers, haha... (yeah good luck...).
Hey, I don’t let parts out the door until payments clear, no accounts receivable, that’s how you get paid on time. Nobody ever owes me money, and I buy nothing on credit
It's fun to hear the difference in how things are done around the world. invoice net 30 that term I have never heard before. I think it's similar to our system invoice payment deadline 7-14-21-28 days it is not common at the payment go over 28 days in Skandinavien. I enjoy hearing this video It sounds like I can hear some of your machines in the background of the video keep up the good work
i want to thank you for all the work you put into these videos. i just picked up a haas tm1 and going to start a garage machine shop. any recommendations on finding work?
Go online and search for local manufacturing companies then start reaching out too see what they need and can’t produce, or if they want to outsource. I’d look for something that is more production vs job shop so you can have repeat orders if possible. Hopefully others can provide input too. Best of luck!
If you have a job shop, don't let ANYTHING out the door without getting paid first. Even if it's on a vehicle, don't let it out the door before getting paid. The ONLY time I have not gotten paid first is working with a major corporation that has been a long time customer and have been very responsible towards other vendors. DON'T factor, barrow money, your accounts receivable, sure way to business death.
I don't give 30 terms anymore. I give them Net10 or net 15 I tell them this upfront. Even if I don't get paid in 10 or 15 days at least I can call and see when my payment will be made before the 30 days are up. Not being able to call until 30 days are up and finding out that my payment won't be mad net 30. I can always ask after 15 days when it might be paid so that way there are no surprises. It seems to work for me. If they aren't on board with these terms I won't do business with them. I just tell the purchasing agent I am too small to fund their projects I'm up front and haven't had issues in The Last 5 Years before that I was constantly freaking out.
Getting new clients to pay a certain upfront percentage helps set the terms, as you confidence in them increases you can back down the percentage they pay.
Might not Xometry Pay spoil the manufacturer client relationship with the terms they use on your customer? Meaning, after you get paid and there is a battle for Xometry to get paid by your customer, there might not be any repeat orders. I would not be comfortable using Xometry with an Aero Space or Automotive company. I think Xometry might work best if one deals with one time walk in customers. Just sayin. JIM
I get you point Jim but really big aerospace and automotive outfits with a long history generally pay on time, the slow pay usually comes from smaller outfits and or someone trying to get going with cash flow issues, I wish I had the Xometry option when I had my business, like John eluded to, you can concentrate on making the shop "run", let Xometry be the leg biters.
Don't take this the wrong way, but what, if any, is the nature of your relationship with xometry? Have you used them before? Are they a sponsor? Just something you've heard about but never used?
"The only real leverage you have over a customer is the withholding of your services." If you're in a commodity biz, competing on price, good luck. Aim to be the best in your field so your customers pay on time and even pay premium prices to keep you as a vendor.
Absolutely, charge them less and provide more then your competition and the customer will be very well behaved. Also specialize in a niche area. It will not only make you better at what you do, which will lower cost and improve quality. But if the customer starts acting bad you can just take your business to his competition. It's twice the pain to the customer at half the price to you. A great position to be in.
@@machinist5506 seems a upfront % needs to be paid in most orders or the buyer can just decide that they do not need that item if they did not invest anything into the deal.
we place all new customers on cc terms until they have a minimum yearly volumes. It is more an honesty test - dishonest customers will start a big deal of roaring and screaming.
Does anyone put late payment penalties IN your terms? Say, a percentage like a financing charge for carrying their account? Binding arbitration for accounts late more than 30 days?
@@johna2076 You are correct... He quickly mentioned that Xometry can charge up to 30% of your invoice if they pay it immediately and then chase for payment. Factoring is a very expensive method to recover unpaid invoices, and will affect your bottom line greatly ending up with little or no profit. As a businessman of 40 years, I would never advise it. This video is a promo... Nothing more in my opinion.
Its amazing how fast money gets found when I file a foreclosure on the house I worked on. I did force foreclosure only once. 875 dollars owed. I dont care if family will be displaced. I dont work for free
It's usually not thanks to cheap and greedy late payers that you make money. In my opinion they just get in the way of better customers. One might put up with them at the beginning of their career, but once a business is well established the perpetual late payers can go the way of the Dodo.
This is too funny. The Academia business stiffs you on net 30 for example and homeowners always get stiffed with higher school taxes every year or other year. Seems like the Academia non-profit business world is the best business to be in. Go figure.
15 years ago, I made a change. I fired every customer who did not pay on time. Business is much more enjoyable dealing with reputable customers. The only customers I have lost in the last 15 years are customer I do not want to do business with. Sounds harsh, but works beautifully.
En how!
Truth!
Absolutly, have done the same.For every bad paying customer there is someone who will appreciate
what you do and pay on time.
customers who don't pay aren't customers. They are thieves.
John that was fantastic! We have taken to not offering terms for customers that do not have a certain volume of work for us, and it is a pretty high threshold (relative to my industry). We generally do not stand in their payables office and tap our foot to get paid on the spot, but the invoice reads "Payment Due on Receipt". For the customer's that do qualify, we limit terms to 15 days, and we generally do not bid or work for government entities. We invoice the same day via email, so there is no built-in delay waiting for snail-mail to get a paper invoice to the right place. More and more companies have been using the hyperlinks in our emailed invoices to pay with a credit card, and we view the fees as a cost of business and write it off accordingly. It has been good for us, cashflow is consistent.
nice way for handling it
Send out the leg breakers ... always works 😎
Yep. They don't pay = send the Bois round.
We once eventually had to get a court judgment issued over non-payment from a bad customer, it locked their bank account on payday, Boy did they pay-up fast. We once got full payment, big $$$, then the payment was "clawed back" due to bankruptcy court. It was Chrysler-related. We negotiated it down from the full amount, but that still really hurt. Also, Never give terms to international customers. No practical way to ever collect.
Knew an irrigation contractor. If he had bad feelings about a customer paying, he put in a secret shutoff valve. No pay, no water.
Great video once more!
My ex-biggest customer used to delay payments from 6 months to more than an year. I start reject their inquiries or giving them a 100% advance payments terms and kinda work for a while. I think they assume their behavior was not very ethical. Anyway other important factor that John missed is what parts are you machining for your customer? Are they some easy parts that everyone can do or more precise and delicate work? Believe me, this matters the most!
I love these business-side videos! Applicable to so many different areas/industries 👍
John, This was perfect! I would love to see more videos like this from you! Also loving the hair man! 💪
This was really helpful, thank you so much
I am 20 years old and I run a company (OCTOPUS Automation and Consultancy) of small to medium size Custom Mechatronic machines and Automations and being a very very small start-up I have been struggling with Account Receivable.
It would be really awesome to have some more detailed videos of specific strategies used in these cases like Xomatry pay.
Thanks again
Municipalities are some of the worst to deal with, they inevitably always seem to have some issue with invoices, a county in Florida we were a vendor to would wait until their internal "pay date" when all the checks were issued to try to resolve some minor problem or "perceived" problem that inevitably caused the payment to be issued "next month on check day", it was needless to say a pretty sour situation considering they would owe typically $5-8K in product/materials and another $1500 or so in shop service, we were a tiny operation with limited operating capital, they were stunned when we chose not to renew our agreement with them to be a supplier, the only way was going to be C.O.D., they balked and I felt a weight had been lifted off of me. We did however have a couple of other small businesses for customers, they were great, mostly paying upon delivery, the few times they asked for "terms" it was only a few days as they too had limited operating capital but they were religious about payment.
Had the machine/fabrication shop for 15 years, overall it was a decent living but when we sold it it was a great day not to have to deal with people in general.
In my country (Slovenia), there have been cases of goverment not paying for contract work for more than a year.
Good topic, John. A couple things I'd add. Even for a small business, use a Purchase Order with your customers and make sure you are OK with their terms. Most companies that have an accounts payable department process invoices as they are received. They have to so they get their accounting right. If they are just not paying, even after they have agreed to terms, either raise your price to recognize the cost of capital, or don't do business with them. Regarding terms - there are different types of terms that sound similar. You can be "Net 30" a lot of different ways. Is it Net 30 days Date of Invoice? Or Net 30 Date of Receipt? Also, be careful of using 3rd party solutions. You need to carefully weigh the cost of their service with the time value of the money. And for a purchaser, a 1% discount for payment in 10 days is worth about 18% on an annualized basis, if I remember my accounting class example correctly. And above all, as Kurt Tedford notes - FIRE YOUR BAD CUSTOMERS! If you have people stringing you out, and your margins are slim, you can be losing money on every transaction due to the cost of working capital. There is a cost to borrow money, and a lost opportunity if you are not paid on time and invest the money in your account. When customers pay on time, you have the opportunity to invest your excess cash, even at today's meager returns.
This is the most sensible reply I have seen here. John promos Invoice factoring here....that route can be a very costly mistake.
I don't own a business, but I did learn some things. As somebody who writes up a lot of stuff (no PO's, but the forms that get turned into PO's), this is helpful to know what's going on with the other side of the fence.
Having spent waaaay too much time in academia, I think it's not that people in academia think they don't have to stick to terms (well, they probably think that, sure, but that's not the issue). It's the mind-boggling bureaucracy around purchasing at universities. You would not believe how many people touch a single purchase, and most of them have no sense of urgency, or importance. I have no idea how those structures grow in the first place, but believe me, they are just as frustrating for the folks in the trenches, who buy stuff to do their work. That doesn't help you as a business but it may explain why you get paid late when dealing with universities...
Having worked in/with academia for long enough to get burned, I can offer some additional insights into the extreme silliness that can be involved in academic purchasing.
1. Many grants and university budgets are tied to specific uses with restrictions on how money is spent. This can range from the reasonable to the mystifying. For example, a budget for undergraduate education may be restricted from contributing to equipment purchases that will also be used for graduate education. Research grants are almost universally divided into budgeted amounts that require the proposal writer to (guess) estimate what "equipment" (items that depreciate, usually >$2000 or $5000) will be required and get special permission from both the university and the grant agency to buy the equipment. Grant agencies also hate budgeting for universities to buy equipment, they want the universities to already have the equipment.
2. As equipment gets larger, requires more power, needs remodels to accommodate, etc., an academic has to get permission from more people in the bureaucracy. You plan to get a CNC machine that requires 3 phase power, needs air filtration for safety (maybe for real, or maybe just for the school lawyer...), needs a heavy duty floor pad to set the machine up on, etc., you now need to get sign off from your department head, the college head, the research grant office, the campus architect's office, the campus electrician, etc. At any point in this process, which can take months before and after the grant writing and decision to buy, someone can raise a show stopping flag. I had one attempted small/medium purchase that ended up taking seven and a half months just to nail down all of the required meetings. I would estimate that about 75% of equipment purchase attempts never even reach full write up as the professors just bash their faces against the bureaucracy.
3. Most research grant agencies rewrite their proposal rules every year or biennium. The same happens for university spending rules. This happens for multiple reasons, but can usually be boiled down to changes in state and federal laws regarding spending, changes in rules from the state and federal Depts. of Education, and rule changes in response to whatever news story has run most recently about a professor misusing funds. The rules WILL change all of the time, and frequently in counterproductive ways.
4. The bureaucracy (mainly the research office and school lawyer) has to go through all of the state and federal rules on spending to ensure that a proposal/grant budget complies with the ever changing rules knowing that a small addendum to a rules annex in a 250 page proposal guide is the difference between the school getting/retaining the grant. So they are very nitpicky about seemingly small details. The real nightmare of everyone involved is for a grant to be secured in hand and then the rules change preventing major and critical purchases needed to execute the grant work. For example, a new overhead charge on non-US purchases increases the cost of a particle sensor purchased from Germany, making the purchase more than the grant budgeted for, and the rest of the budget is locked into funding research assistants' tuition and hours, lab tech salary, etc. Now what does the university do?
5. Professors are busy people and staff are frequently away for training. I have lost track of the number of productive days/months/years lost to people being away from the office for conferences, meetings, and trainings. Department heads and college heads are frequently away at conferences, legislative events, professional society meetings, donor events, etc. Staff have similarly busy schedules or staff are part time, but still need all of the same trainings so they are away disproportionately more of their working time. I would say 15-25% of the time one or more of the critical budget authorizing authorities is away from the office. Email and ubiquitous wifi have alleviated some of this problem, but it still frequently added a few days to okaying purchases.
@@timberwolfd1334 amazing summary of the horrors that lurk in academia. Very close to my own experiences...
Another insight from the point of view of a lowly research assistant. Say you want to buy a Thing. It's not super expensive so you don't have to do the whole sing and dance around getting multiple quotes or even putting it up for tender. You enter the RFQ into your ERP system (and we all know that EVERY such ERP system sucks in new and innovative ways). Now say you know it's a one or two day delivery service and you want to get the item soon. So you message your prof to approve it right away. Then, you hoof over to Stores, make some smalltalk with the person who does the order, and then ask them kindly to process your order, like, right now. They do the purchase, you go back to your day. Next day, you go back to Stores, make some smalltalk again, and ask the ordering person to check the order and give you a tracking number. Then, you wait until tracking says it's here. You then hoof over to Stores again, ask the receiving person for your package. The receiving person will vehemently deny ever having seen, much less received your package. You then show them your tracking with their signature, and they go away and produce your package. You sign whatever scrap of paper is on hand (and better bring your own pen or you lose another five minutes of your life to wait for them to find one), and make a run for it.
If you don't follow those steps, a next day delivery item will "arrive" (i.e. be in your hands) about 2-3 weeks after you enter the RFQ.
Another fun experience was starting employment with a new university, complete with moving to another country and the associated expenses. It took Finance two months to process me and send me the first paycheck. Which, by the way, was hardly above minimum wage, so working in academia is just no fun.
@@sebastiansteiner5108 Don't remind me of receiving. The number of times I had packages spend a week or more traveling a quarter mile (400m) from the receiving building to my office building was stupefying. I have to give honorable mention to the UPS/DHL/Fedex people who could get stuff to my office building on the delivery day. The USPS had to deliver to the university receiving dock and then packages would disappear into "the system".
Speaking from the professor side of things, my university let us apply for purchasing cards and use Amazon for small stuff, which made so many things better for everyone. But the fixed purpose budgets were still a major pain, since the "supplies" category was never big enough if you were keeping the budget competitive and actually paying yourself summer salary. We could also get small ticket equipment on the purchasing card if we had budget approval to purchase it.
The cold hearted move the bureaucracy would throw in on small purchases was overhead. (Almost) Everything you spent had overhead charges tacked on to the purchase. It doesn't take much purchasing for a 50% overhead charge to eat a budget category. Buy that $10 widget on Amazon, get $15 charged to your budget. It's like constantly having rats biting you. No one bite will kill you or even seriously injure you, but, by that 400th bite, you don't have any blood left to bleed.
Getting back to the original point of sticking to terms, I would have loved to have had the authority to do anything related to terms. I simply had zero power/authority in that regard. I had no influence in the process at all once the decision to purchase something was okayed. At that point I was every bit as frustrated as any supplier dealing with procurement. The part a vendor doesn't see is that I could easily have been fighting for a quarter to get the purchasing department to cut the order in the first place. The horror stories I was lucky enough to only be a bystander for... At least all of my purchases were cut in the same quarter I put them in for. One of my colleagues had a four month battle to get the vendor okayed for purchasing from, then a two month battle to get the order issued, and another four months to get the order corrected for a typo purchasing made that changed the sensor ordered to a different type that looked the same to the [expletives] purchasing agent. I don't know how long it took for the vendor to get paid in that mess.
Always great info John! Thanks for sharing your experience.
Gday John, great subject to talk about and some great tips, thanks mate,
This is a FANTASTIC video. I’m an engineer who recently has also had to wear a Project Management hat and this was a really educational video to help bridge the gap from engineering-manufacturing-shipping-and finally getting paid. Thank you!
Very Well Done, Thanks for sharing
How it is possible to wait payment for 30-120 days? Here in Russia i must pay in 3-10 days for raw materials and nobody will produce parts without 100% advance payment.
A very good video and informative. The one thing about government is that they will pay you. Not only that but in order to place an order,the funds have to be available. However things can be sped up. I always encouraged vendors to send the invoice with the goods; that way we could approve payment usually within one or two days of receiving the goods. Policy was to pay 30 days upon receipt of invoice so the best way to speed that up is to get invoices in on time. Generally government departments spend less on average than most contractors, so in order to ensure good relationships with suppliers, we tried to make things move as smoothly as possible.
I just checked, we have a customer who pays 75 days late on average. They always book the PO a month minus a day after we send it, changed the payment terms to net 60 even though we've agreed net 30, and still pay 15 days late.
I spoke to our contact there, and they admitted it was standard practice for all companies they purchase from.
I informed the head of purchasing that I'd be adding 15% to their subsequent bills, as I was assured that it would be at least a quarter until money would hit the account. They said that was fair, and that's the way we've worked for 2 years.
Large corporations are insane.
Really interesting insights, thanks for sharing! I have a small specialized tech company (Europe) and we had similar issues in a few cases (fortunately rare). We push for prepayment now wherever we can (except academia where it's mostly not possible).
Funnily, it seems (anecdotally) that "Net 30" is really uncommon in Asia. We've sent quotes with net-30 terms to China and Korea, and they always wired the full amount instantly together with their PO, upfront, unasked. I was wondering if anyone knows if Asia commonly does prepayment only, so they didn't even realise it's net-30? The few customers we had to chase for 6 months were from US and Northern Europe (they paid eventually after a lot of nagging...). Important not to be prejudiced :)
I believe it's a Cultural thing in China. It seems like they don't want to owe something. They reject taking tips. Their whole system is completely different.
I worked there for 2 weeks and it was life changing. That experience was a big factor in starting my business.
-Ken
I had a guy that worked for me that spent a few years in So Korea, he mentioned this custom (paying upfront) more than once in conversations I was having about people dragging their feet to pay, he also said the Koreans expect "on time" delivery too, quality was important but they ranked delivery as an integrity issue slightly above quality, being late without a genuine reason out of your control just would not fly.
It depends on business sectors. Here in China,Generally, Net 30 is good, Net 60 is not bad, Net 90&120 acceptable for big customers like Fortunate 500. For EU/US customers, usually some upfront, balance before shipping.
Sending Louie and Mugsy to reason with a non paying customer works too.
I Use Guido. He's usually all it takes. If Not he has a twin brother named Pauly. 100% on the AR every month less the Vigorish.......
I have dropped in on a customer and demanded payment from the Payables person. She called the boss and said "This guy is sitting in my office and he's not leaving until he has a check". She put the boss on the phone with me and we had a discussion about the situation. His final jab was "If you are going to act this way we won't give you any more business". We had only done this one job for this customer and they were trying to stiff us. Got the check, fired the customer
It's better to "Call Saul".
As someone who works for a school (K-12), Our procurement process is an absolute mess, None of which is within our control. There are so many rules around it. The state is way more worried we might be stealing/embezzling/giving out preferential PO's than that our vendors get paid on time.
The state is too worried about creating a new tax to create even more cash flow for the next year. Now that Biden is in, I will recommend the right to breathe tax for everyone and soon we will be just like England. Your are doing a Great job people, keep up the good work!!
@@nicholasdautel1228 Jesus Fuckin' Christ dude, Chill. No one cares about your politics on a comment on a machining video.
Factors buy accounts receivables at a discount and then collect from your customers. In the age of e-commerce, computerized accounting software and online payments, I think it’s less common, especially when banks are willing to lend funds for working capital. If you go that route, be careful when credit markets tighten. Great video.
I see the looooong payment terms in the service industry. 30 days seems to be the unicorn these days. 90 and 120 day pay are very common. Seems the larger the company, the longer they take to pay.
One of the reasons that big companies do that is so they can collect interest on the money longer.
Send the invoice as early as possible. You don’t have to deliver the product before you send the bill. For products it may be hard, but for services like where you have a long contract with fixed cost each month it works.
Great video! Thanks for posting.
Would Xometry be a competitor to your shop ? Is it a good idea dump your files in to their platform where they can store it and collect info ?
I am also interested in xometry , I wish john would do a video on them .
@@dutrajordan78 I think he did in a previous videos.
My father taught me something about late payers... be nice and get them on COD terms then they are your best customer... it has worked for me for years...
@@dmiasesores cash on delivery... let me elaborate a little more. What tends to happen is you have a customer that gets late on their payments... they often times are in financial trouble and you have a choice of saying pay up or I won't ship anything more... they usually will just find someone else to do the same thing again to you loose a customer and you may loose your money as well. Instead I would suggest working out a deal where they pay a little on their old bill each week... usually on a credit card and they COD (pay when you ship more product) again I like to use credit card even though there is a fee because you can run the card and get the money just before you ship... when you get your money the same day as you ship they really become your best paying customer.
Wanna hear ridiculous thing: I own a large brewery in Nj, and we are obligated to provide credit terms to retailers. BUT, if they don’t pay, *we* are at the risk of a fine from the regulating agency. Yep, read that again. We have to provide terms snd we get fine pad if they don’t pay. Liquor laws are bizarroworld.
Net 120?? Seriously? Wow... just... wow. Depends on the business sector I guess, never came across that fortunately. Maybe should try that on our suppliers, haha... (yeah good luck...).
Gotta love aerospace work :p
I’ve had net 90. Typically that’s when money has to exchange a bunch of hands. It’s rough
Hey, I don’t let parts out the door until payments clear, no accounts receivable, that’s how you get paid on time. Nobody ever owes me money, and I buy nothing on credit
C.O.D.
@@greatestevar He will be fine, I got a feeling. All rapid business growth is with help of that in one way or another.
What do you do if the customer just decides they do not need those expensive parts which you might have spent a lot of time/money making?
It's fun to hear the difference in how things are done around the world.
invoice net 30 that term I have never heard before.
I think it's similar to our system invoice payment deadline 7-14-21-28 days it is not common at the payment go over 28 days in Skandinavien.
I enjoy hearing this video It sounds like I can hear some of your machines in the background of the video
keep up the good work
Don't you have to pay income tax in some countries if you received service/stuff but didn't pay for it for over 30 days? It is free loan
i want to thank you for all the work you put into these videos. i just picked up a haas tm1 and going to start a garage machine shop. any recommendations on finding work?
Go online and search for local manufacturing companies then start reaching out too see what they need and can’t produce, or if they want to outsource. I’d look for something that is more production vs job shop so you can have repeat orders if possible. Hopefully others can provide input too. Best of luck!
If you have a job shop, don't let ANYTHING out the door without getting paid first. Even if it's on a vehicle, don't let it out the door before getting paid. The ONLY time I have not gotten paid first is working with a major corporation that has been a long time customer and have been very responsible towards other vendors. DON'T factor, barrow money, your accounts receivable, sure way to business death.
I don't give 30 terms anymore. I give them Net10 or net 15 I tell them this upfront. Even if I don't get paid in 10 or 15 days at least I can call and see when my payment will be made before the 30 days are up. Not being able to call until 30 days are up and finding out that my payment won't be mad net 30. I can always ask after 15 days when it might be paid so that way there are no surprises. It seems to work for me. If they aren't on board with these terms I won't do business with them. I just tell the purchasing agent I am too small to fund their projects I'm up front and haven't had issues in The Last 5 Years before that I was constantly freaking out.
Outstanding video! Thank you!!
Getting new clients to pay a certain upfront percentage helps set the terms, as you confidence in them increases you can back down the percentage they pay.
Great info thanks chap
On a cycloidal drive. I can get the cycloidal disc to turn right, but how do you get the out put rollers and plate to turn with the cycloidal disk.
In my business it was pay or no car. Thankfully this was very rare.
Might not Xometry Pay spoil the manufacturer client relationship with the terms they use on your customer?
Meaning, after you get paid and there is a battle for Xometry to get paid by your customer, there might not be any repeat orders.
I would not be comfortable using Xometry with an Aero Space or Automotive company.
I think Xometry might work best if one deals with one time walk in customers.
Just sayin.
JIM
I get you point Jim but really big aerospace and automotive outfits with a long history generally pay on time, the slow pay usually comes from smaller outfits and or someone trying to get going with cash flow issues, I wish I had the Xometry option when I had my business, like John eluded to, you can concentrate on making the shop "run", let Xometry be the leg biters.
Would love to see more videos like this
This is one of the biggest problems for me... been waiting months for some things.
Great video John. Ciao, Marco.
Great ad thanks
Don't take this the wrong way, but what, if any, is the nature of your relationship with xometry? Have you used them before? Are they a sponsor? Just something you've heard about but never used?
I'd be worried xometry would cut you out and start supplying the parts lol
"The only real leverage you have over a customer is the withholding of your services." If you're in a commodity biz, competing on price, good luck. Aim to be the best in your field so your customers pay on time and even pay premium prices to keep you as a vendor.
Absolutely, charge them less and provide more then your competition and the customer will be very well behaved.
Also specialize in a niche area. It will not only make you better at what you do, which will lower cost and improve quality.
But if the customer starts acting bad you can just take your business to his competition.
It's twice the pain to the customer at half the price to you. A great position to be in.
Customer pays when work is done or it stays here.
@@machinist5506 seems a upfront % needs to be paid in most orders or the buyer can just decide that they do not need that item if they did not invest anything into the deal.
Thanks
we place all new customers on cc terms until they have a minimum yearly volumes. It is more an honesty test - dishonest customers will start a big deal of roaring and screaming.
what are cc terms
credit card
So you have up front fee? Or do you request full payment up front (seems risky for the customer who might do a large order)?
Is the podcast on RUclips?
its on their website
@@marouanebenderradji137 So not on an easily accessible platform that i could listen to while doing work. Disappointing.
@@spike7112ify well you can access it on your cell phone and there is a special website for podcasts only
We factor all our our invoices at 90% up front. We get the remaining, minus 3% factoring fee, when the invoice is paid.
Does anyone put late payment penalties IN your terms? Say, a percentage like a financing charge for carrying their account? Binding arbitration for accounts late more than 30 days?
You are absolutely right. That's the way to go. Not with the Invoice factoring promo he sells at the end of this video.
Thank you!
Isnt that just Xometry setting themselves up as a collections agent?
Sounds like farming out accounting in general. I expect they get a healthy cut for taking on the financing and risk.
This is problem
Type of customers start the works by two or more
But only finish and pay to one!!!!!
Your hair grew back!
So he took my comment down pointing out invoice factoring pitfalls.
That's suspicious. Xometry and their ilk are suspicious too.
@@johna2076 You are correct... He quickly mentioned that Xometry can charge up to 30% of your invoice if they pay it immediately and then chase for payment. Factoring is a very expensive method to recover unpaid invoices, and will affect your bottom line greatly ending up with little or no profit. As a businessman of 40 years, I would never advise it. This video is a promo... Nothing more in my opinion.
Its amazing how fast money gets found when I file a foreclosure on the house I worked on.
I did force foreclosure only once.
875 dollars owed.
I dont care if family will be displaced.
I dont work for free
It's usually not thanks to cheap and greedy late payers that you make money. In my opinion they just get in the way of better customers. One might put up with them at the beginning of their career, but once a business is well established the perpetual late payers can go the way of the Dodo.
‘Includes paid promotion”
No money, no parts.
No part leaves the building unless its paid for.
If you're customers don't like it they can go elsewhere.
Whaaaat? Hair? Almost distracting! What happened to the completely shorn head principle?
A month ago, my kids said "Dad why do you never grow your hair out". Challenge accepted.
Bitcoin or find another shop to get your parts. Done! See ya later! Have a nice day!
This is too funny. The Academia business stiffs you on net 30 for example and homeowners always get stiffed with higher school taxes every year or other year. Seems like the Academia non-profit business world is the best business to be in. Go figure.