Small Business Cash Flow to the Big Company
I am a small business doing work in the fortune 500 world. I am filed as a Chapter S Corporation. The big companies I deal with pay me by paper check, Bill their clients for my time with a 30 day invoice and pay me on a 45 day invoice and expenses comes even longer. I have written and made changes to SOW to do a shorter pay and also asked for a percentage upfront with no avail? Any suggestions?
Thanks
Good Answers (2)
The answers begin in Accounts Payable but they don't end there. There is probably one individual who handles your invoices and account in Accounts Payable. Find them first and ask a couple of questions. One is if they have the ability to accept your invoices electronically. More and more Fortune 500 companies have gone to systems that can do this so the sooner you can get your invoice into their system the faster they can bill their customer and they can pay you. Ask what the procedure is to submit your invoices electronically. It may require some special software and you'll have to determine if it's worth the cost.
The other question you need to ask is about electronic payment (EPS). The writer above is incorrect that these are normally done with a wire unless it's a special circumstance. Wires are too expensive. Routinely these are done with an ACH (Automated Clearing House) which can be done for pennies. Effectively it's the same thing as far as you are concerned. These are probably done through the corporations treasury department which is the same department that disburses your check. There may be dollar size minimums imposed but they will tell you that. Ask how you can get enrolled for ACH payment on your invoices and follow their procedure. This will be faster than waiting for a check in the mail.
Your experience in doing business with a major corporation isn't unusual. I've heard horror stories about small companies getting squeezed by large corporation payment policies. You could try asking for a retainer or deposit to be applied to your final invoice but I wouldn't count on it.
Once you've done everything you can to speed up the processing of your invoices and receiving payment electronically and you'll still having cashflow issues, you have two options.
One is to apply for a line of credit with a lender. Normally you need to be in business a least two years and meet other criteria to qualify for a line of credit. Try your own bank first. If you strike out, contact me and I'll see if I can help you.
The other option is factoring. If you cannot get a line of credit from a lender, you can receive cash advances on invoices you sell to a factor. You'll be able to get 60 to 70% of the invoice value within 2-3 days and the balance minus charges when your customer pays the invoices. Factoring is a valid option for many small companies that don't qualify for a line of credit.
Joseph W
Quantitative Finance Research / Astrophysics
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The big problem is that the people who you talk to in order to get the work done aren't related to the people that actually cut the check.
1) One thing to see is if the companies you work for have the capacity to accept electronic invoices and pay by direct deposit.
2) Find a personal contact in accounts payable. The thing about this is that they can let you know about the baroque bureaucracy that makes up a Fortune 500 corporation.
3) Network with other small business vendors to the same Fortune 500 corporation. They'll either be able to tell you the tricks to get paid, or if everyone is running into the same headache, you can come together and raise the issue with someone that can do something about it.
4) Finally, you might also want to talk to a bank about getting a line of credit secured against future cash flows so that you don't run into a cash crunch.
More Answers (3)
Patrick D
Computer & Security consultant, owner ProMind
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It's a worldwide phenomenon I'm afraid. I personally do ask for advance payments if I need to pay other parties first. I also offer a small discount for promt payment, which works surprisingly well here. (Europe).
But I never pay out money I haven't received first, even large companies go bankrupt or dispute invoices endlessly. In the end it's not worth the hassle or the risk ..
Mark D
Senior Retail and Distribution Finance Executive
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Go right to the source, call the VP or Director of Shared Financial Services (AP) and ask him or her what their payment policies are. Second, ask if they can convert you from a paper check to a wire. Third, find out if the delay is with the person or department approving the invoice, AP can not pay what they do not have. You need to understand the payment policy of who you are dealing with, as that is what they will follow and not what is in your SOW. Finally, I hope the AP folks are on your Christmas list, because they are the folks that can truly help you.
Neil G
Corporate Finance Advisor and Consulting CFO
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I've long thought that large companies with good credit should pay smaller vendors with lessor credit more quickly. The large company would get a better price, the vendor would get much needed cash flow and the only loser would be the bank. Unfortunately, it never works out that way.
In your situation, no doubt, the person who hires you if far (organizationally) from the person who pays you. Keep you relationship strong by making hiring you easy, even if you need to wait to get paid. The alternative is to have someone negotiate internally across departments in an effort to get approval for an exception to what's likely company policy.
I'd second the advice already given and seek a line of credit from a friendly local bank. Borrow when you need to bridge the delay between doing the work and getting paid for it and only when you need the cash flow. You'll barely notice the interest cost.
