How to Respond When an Important Customer Arbitrarily Wants to Set Longer Terms For Payment
We've been hearing increasingly lately about customers sending notices to suppliers informing them that they are simply going to be taking longer to pay. In fact, we recently wrote after our Credit Crisis Roundtable Meeting < http://www.credittoday.net/public/department100.cfm > that perhaps it might even be advantageous for better capitalized suppliers to, in essence, become a "bank of last resort" and use that as a marketing opportunity to both a) gain market share, and b) help some segment of their customer base survive during hard times. But not everyone can, or should, allow this type of blanket demand by a customer. For some, margins might be too low. And the fact of the matter is, at Credit Today, we've never liked the arbitrary breaking of contracts by customers. SUPPLIERS set sales terms. First, recognize that what you do in response to such a request is first and foremost a business decision, in particular a marketing decision. I know, you might be thinking "what are you crazy, Credit Today? Terms are a FINANCE function and involve risk and the cost of money and all that." True enough. But in general, terms are set by the marketplace - i.e., whatever is standard in your particular market. Second, once you understand what customers expect in your particular marketplace, management might make a decision that terms can be used to facilitate some other marketing goal, and of course, they'll factor in the cost doing so. But back to our issue this week, which is the situation where a customer sends a notice informing you that they're going to pay all suppliers in xx days, and that is longer than you'd normally allow. A number of questions need to be asked at this point. How important is this customer to you? What are your margins? What kind of leeway do you have to allow late payments (ie, your own cash flow issues)? Even if the customer is a big customer, it still might be a bit of bluster on their part, kind of a "bombs away" maneuver that they don't necessarily expect will work across the board. So you probably - with senior management's buy-in - should send a letter such as the following: =========================== Dear [Contact at Important Customer], Thank you for your letter of [date] in which you advised that you will be paying all suppliers in [xx] days instead of paying based on our stated terms of [xx] days. You are one of our biggest and best customers and we very much appreciate your business and recognize the difficult business environment we all are operating in today. If there was anyone that we would like to allow to pay in these terms, it would certainly be your firm. But unfortunately, if we did so, we would be in violation of the antitrust laws of the United States. Under the Robinson Patman act, we are required to treat all like customers equally. So we must respectfully request that you continue to pay us in our normal terms of [xx]. Thank you, [credit manager's name] =============== If you want to take a stronger stance, you can add the following clause at the bottom or your letter for emphasis: =============== Please sign and acknowledge receipt of this letter and our terms and fax or email back to me at (xxx) xxx-xxxx or [your.name@yourcompany.com]. We recognize that the selling terms of [your company] are [terms] Agreed: ________________________ Date: _____________________ Title: ________________________ ==================== Now, they can still come back to you and reassert their demand, or they might ignore your letter and take the longer time anyway. But at the very least, you should make every effort to counter such an initial demand made by a customer, no matter how important they might be.
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