Wednesday, August 09, 2006

Operating on a loftier plain

I was on holiday in France last week. I was really enjoying myself. Jac and the kids were having fun; we were in a nice place - Le Touquet - in a decent hotel with plenty to do. But one thing was nagging at the back of my mind.

I'd spent all of June working on two projects for one large client. The invoices submitted at the end of the month signified all of my income for the month - and one had to cover much of the expense of a trip to the US.

Before heading off for France, and on the assumption of these invoices being paid as usual in the last week of the following month, I'd set up for my quarterly VAT and a number of other payments to be made electronically - on top of my usual business outgoings.

By July 27, when the invoices were due for payment and when I'd normally expect to see some inward activity on my business account, there was nothing, and I headed off to France with just a small worry lodged at the back of my head that something may be wrong.

Give or six days later I logged on to the hotel's computer to check my business account. Nothing had arrived. So, I fired off a couple of e-mails to my clients to let them know the invoices were late and to ask them when payment would be received.

Next day I signed on again and was informed the client had changed their policy and that from June 1 had adopted a practice whereby invoices would be paid at the end of the month following the month in which they were processed.

For me, this meant at least an extra month to wait for payment for two jobs I'd already completed more than a month before. It was a shock. 2005 was really lousy for me in terms of work and it has taken all of 2006 to get my finances pretty much back in the black again.

June was a very good month and should have enabled me to clear all outstanding debt on the business and get ahead of ongoing expenses. The downside was that the two projects had taken all my time and I'd been unable to carry out any work for other clients. The result was no money coming in from elsewhere. So, here I found myself in France, unable to pay my July salary and unable to cover my outstanding debts - and all because of inefficiencies and high-handed practice in a £ multi-billion client.

My direct clients were mortified, and one has managed to get an emergency payment to me which has helped greatly. But they shouldn't have to do that.

The Finance team of the client has pointed out that they informed suppliers of the change some months ago. I've kept the letter and referred back to it. It's so ambiguous it could mean anything. Their supplier communication was extremely poor and now they're apparently copping a huge amount of flak both from small suppliers like me, and from the internal business teams they're supposed to support. Good! They deserve all the shit headed in their direction.

I've always ensured that I get invoices to this client before the end of one month, and they've always been paid at the end of the next. That can be tough as it's not a company where it's easy to get purchase orders in the first place and the volume of work that actually transpires can be well in excess of the original estimate. So, the client practice has been to accept an estimate but wait and see the actual size and cost of the job before raising a PO. But it seems that has often led to panic at the heart of the accounting team whose practices are apparently not as efficient as they could be. They're used to settling invoices for widgets and the like with long lead times and regular payments - not dealing with micro-suppliers who get a PO one day, submit an invoice the next and expect payment 30 days later (although it happens all the time). And this is despite printed 30 day terms on my invoice - terms that they simply ignore.

Their new rules seemingly allow them to sit on an invoice for as long as they like and only set up payment at the end of the month following their final action. I've just found that one of my June invoices has only just been processed and that the company thinks it's perfectly reasonable for me to now wait until September 30th for payment.

In so doing, they're classifying my tiny business in exactly the same way as they would one of their multi-million pound suppliers. Sure the big guys can absorb a month or two's late payment. For me, especially rebuilding after a poor year, things can be rather more hand to mouth. Surely it's not too difficult to have a separate payment category for small-time small volume marketing service suppliers?

What annoys me more is that this has already cost money to extend my overdraft, more money in additional interest on loan and card repayments - and really gave a horrible ending to my holiday.

Meanwhile the client has covered its internal inefficiencies and ensured that more money (that doesn't belong to it) stays in the business for longer.

My experience at Forte when our Finance team imposed a similar payment structure was that some really good small suppliers walked away and that others put up their costs to cover the additional hassle. This came about through the Finance function being solely concerned with figures rather than the impact on the people on the other side of their decisions.

Along with my marketing colleagues at the time we lobbied hard and got the Forte Finance team to move back from 60 - 90 day + payments to the 'end of next month' scenario I've enjoyed for the last six years with the client currently giving me grief.

I really don't want to walk away from this client, but have just put myestimatee for the next job with them up by 10%. In future, they can expect weekly invoices and I certainly won't be starting any work without a Purchase Order.

For six years, they've prospered on my goodwill. But client/supplier relationships are two-way, and they seem to have forgotten that. Result? A lot less goodwill from me.


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