Payment terms with direct customers

the three black holes it would seem still...

Cali, TX and FL. Always have tried to avoid them with a passion.

 

Payment terms with most of my customers are Net 30 I do have one that is net 60 which kind of sucks but I knew what I was getting into when I started with them.

They will not be offended if you ask them what there payment terms are or how they pay. Try to set it up so that you email your invoice and POD directly to whomever you deal with in A/P. I have found that this not only speeds up the process but they pay these faster than if you send regular snail mail. Another thing I would do is try set up ACH instead of regular check. Also if you have some that do stretch out there terms I find that a small discount for payment in 7 days will usually work.

 

A 2-3% discount to get paid 30 days earlier is NOT a "little discount". That's a HUGE discount. 2-3% on 30 days is 24-36% per annum.

And 2% to get paid 2 weeks earlier is 48% per annum. What that REALLY would tell me if I was the shipper is that the trucking company is on the verge of bankruptcy. On the spraying side of our business, we bill net 30 days, 2% per month interest after 30 but the interest in discretionary, we usually don't charge it but can and do in some circumstances. On the oilfield side of our business, oil companies typically pay net 90 days, sometimes it goes to 120 days and sometimes you get paid in 60 days but we know this going in and plan accordingly.

 

and if you are telling them that they can pay Net 30 2% is that it's up to them to pay. It still is 24% annum, but they could take 18 months to pay for all they care.

They both have their goals in what you are trying to achieve with them.

Net15 7-2% is just an example. As is yours. It's common for companies to do it either way.

One invites fast pay, the other slow pay.

 

Maybe i'am bad at math but where do you come up with these rates. This is not a bank loan where the 2% discount is compounded monthly. If i do $20k a year for a shipper and i give a 2% discount to get paid weekly, 2% of $20k is $400.00 end of story i do not get charged 2% every month. Even if i bill them monthly say $10k with a 2% discount thats a $200.00 discount monthly. So thru the hole years on $120kk the discount would be $2400.00 still only 2% of the gross pay. Maybe i'am wrong but thats how i see it.

 

actually it would depend on how it is financed...

If it is compounded monthly, it would be 24%. 24%/12= 2%

A Net 15 1.5% after 30 would be 18% interest. 12*1.5%= 18%

If you compound the interest weekly, it would be 104%. 52*2% = 104%

Another example. Look at your credit card bill. It shows you a 18% or 29% or other annual interest rate. if it is compounded daily, that would be your balance times 0.00079% or there abouts, EVERY DAY towards the principal owed. And that interest is added to the principal and interest is applied to it again.

Every day until you pay it off.

It's why it can take 4-5 YEARS to pay off a credit card balance of even just $1500 making minimum payments. All you are doing is covering the interest plus a minimum amount of the principal.

 

If you do 20K a year your discounting 1600.00/month. 400.00 for 30 days on 1600.00 is 25%.

 

20K * .02 = 400, not 1600.

 

20K a year is 1666/month. Just like factoring. You factor 120K with a 30 day turn-around is 10K month. You keep "borrowing" the same 10K 12 times a year.