Credit Matters Blog

We Will Pay You When They Pay Us

Kim Radok 09 January 2012


There is a practice in some professions and industries, where a business placing an order with another business - only pays for that order - when they themselves get paid by their customer.

This policy seems a risky way of doing business in the best of times. To maintain these practices whilst the GFC is still evident,  seems to be an even riskier practice.

There are many people within these same professions and industries who say - but that is how it has always been done. My answer is - well it may have been an acceptable way of doing business in the past, but times are very much different now.

In the past, it could be claimed, doing business was much easier. Furthermore, with so much business around, an occasional bad debt could be carried in the ordinary course of doing business.

Today however, doing business has changed in so many ways. I suggest, as many business owners and professionals found in the  recession of 1987-1992, you cannot always afford to be choosy. A small sale is better than no sale at all.

Just ask a business owner or professional who survived that recession, and they will inevitable tell you, it was these small sales which allowed them to survive. In a number of cases, these same people found new markets and new ways of doing business.

From another perspective, the costs of doing business today have increased substantially. In part, these costs are the result of Government Legislation designed to protect consumers and small business. What we have seen, or you will soon see, are conditions which  appear to favour delinquent customers over the rights of business enterprises.

Another substantial cost is that of recovering a bad debt or dealing with a slow paying customer. At best, it is time consuming, and at worst, financially costly and time consuming. Even then, if the Courts are in your favour, there is no guarantee you will still GET PAID.

The aforementioned situations are indicative of one set of problems, when doing business and extending credit.

The next set of problems relate to what happens when the original customer does not pay the business which placed the order.

What is the supplier supposed to do in these circumstances? I strongly suggest they will not walk away and just of off the debt.

Obviously the supplier has to share some blame in these situations. The fact is, most suppliers will try and blame their customer. After all, they will claim why is the business placing an order without checking they will actually get paid? However, this just what the supplier has done.

By blaming their customer, the supplier is ignoring their own responsibilities to the financial welfare of their business.

Nevertheless, the supplier usually gets all huffy and demands that the business placing the order, pays. This business, not wanting to take their share of the blame, gets equally huffy and says to the supplier - you know the industry norm, "We will pay you when we get paid".

Matters descend to threats, legal action and black-listing etc. Meanwhile the original customer gets away with not paying or drawing out the payment arrangement.

How does it all end? Only you can tell me - case by case. But inevitably, there will no winners.

There are always better ways of doing business, even for professional and industries bound by historical industry norms. The supplier just has to grasp the bit between their teeth and start to act more realistically.

Remember, the GFC has changed the rules of doing business - in all markets. Be brave, be different and SELL your point of difference - not just descend to the lowest common dominator where no one wins and say there is nothing you can do.

May you be paid today rather than tomorrow.

Kim Radok