Question of the day

H

hunter

Member
Feb 4, 2010
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I have had in the last month and a half about 60% of my customers request that my terms be changed from 30 days to 60 days due to the economy. So the questions is do I change and keep my customers or do I argue the point that it costs me as much to operate as it does them. They may be a larger company but operating costs will be close percentage wise. 30 days terms are normally 45 days and I am worried that 60 turns into 75 days.
What would you do?
 
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Stay strict to your terms. If you decide to give them an inch, they'll take a mile. Are you in a position to go to your vendors/bill collectors and renegotiate your terms?
 
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As we have all seen...things are picking up slowly, but steadily. AND as we have seen in multiple posts, rates are probably going to be on the rise...again..slowly but steadily. I believe that some customers are aware of this and may be trying to stretch payment terms because they foresee rate increases coming and want to deflect the cash flow implications to you...perhaps....
 
Hunter,

You need to stick to your terms because as CT-Watercliff noted - your customers will take that mile - 45 days easily turns into 60 which always at some point slides to 70 - especially when rates will increase and payables get larger....but there are circumstances to consider here also...

During hard times - I tend to be more strict on accounts - especially on ones with small amounts owing (under $1000). If it is taking them over 60 days to pay off their balance - they certainly won't be able to handle anything more therefore we either don't do business with them again OR they need to pay their balance prior to booking more loads. Regardless if their old balance is due or not. In this scenario - that particular customer has lost terms. Not all customers (in any type of business) should have the same terms or in fact - terms at all...

There is a huge misconception that during hard economic times - any "new" business is "good" business OR "necessary" business. And any company that has freight to move should be given the normal net 30. This simply isn't true. Any new company that doesn't pay within terms (after agreeing to do so) usually ends up on our DNU list shortly after. You need to start new customers off right - it is always nice to have new business - as long as it is "good" business.

Therefore Hunter - stick to your initial terms - if the customers are larger and worthwhile - meet them half way at no more than 45 days. You do the work, provide a service, pay your bills...you expect to be paid in a timely manner. Expect no less!!!
 
Extendin credit

During an economic slowdown/recession, and with rising interest rates, I believe that restricting rather than extending credit terms is a wise policy. Regardless of whether or not this is a new or old customer with either a little or a lot of volume, if they do not have the working capital to operate their business responsibly, it's just a matter of time before things go sideways for them. Normally, competently operated businesses know what their capital requirements are in order to do the volume that they do, or want to do. If there's insufficient capital available for this, then they normally look to traditional sources or capital, such as borrowing from commercial lenders, or float a debenture, or sell bonds or issue new stock. Why then, would they come to you? If they have a cash flow problem, and you allow them longer terms, it will unnecessarily become your problem. What will you be getting in return? Are they willing to properly compensate you for the additional risk, or perhaps consider enabling you to become a secured creditor to offset the risk? Just by asking you for longer terms, they are putting you on notice that traditional sources are unavailable to them, and they should be scrutinized closely and regularly. If you risk losing their business as a result of not acquiescing to their needs, and you won't be able to replace it with good business, do you have a plan to downsize, and lower your overhead accordingly? As others have said here, no business is a heck of a lot better than bad business. We operate in the largest industry in the world, but with modern technology, this world has become very small. Your personal reputation is more important than ever. No business has ever gone bankrupt for any other reason than financial mismanagement. That includes extending credit terms without properly assessing the increased risk and getting compensated for it.
 
Very thoughtful and well stated Activet. In regards to "new business", I insist that our sales staff ask the potential "new" customer, who they are using currently for their transportation? In quite a few cases, they are looking to move their business because the incumbent has refused to accept longer payment terms. Lets face it, unless it is a new start-up (which poses it's own concerns), there is very little business that can reasonably be called "new".
 
I recently had a prospetive client tell me their terms were 90 days for the first 3 months, then they will settle in to a more manageable 30 day terms with us.

Huh? Is that supposed to be some sort of test? They inundate us with work for the first 3 months, then when the cheques are due to start rolling in they dump us? I can't help but think this is going to be an ugly relationship at best.
 
If it were me - I'd be sticking to my original terms. That said... I'd also become concerned about the future well being of this customer.

Also note, that if you slide back to 90 days now... you'll have an awfully rough time clawing your way back to 30 days once things return to normal.

It's becoming more and more apparent that the shippers out there are caring less and less about their service providers. I remember a time when if a dirty truck picked up, or a dirty driver we'd get an earful. These days it's cut the rates... lengthen our terms cheap, cheap, cheap. And they're getting away with it because there's just too many trucks out there fighting over the freight.
 
I agree with all of your comments. Don't get me wrong there are still good customers that pay what we deserve and they pay me weekly. I have been sticking to the original terms and forcing the point. The customers that want me to extend the terms are stating they must because that is what their customers are doing to them. Nawk you are right in stating that we as a carrier are shoved to the bottom. A lot of companies but not all want the lowest rates possible and then still demand perfect service.
 
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I agree, stick to your guns.
If your boss told you that your pay cheque was going to come a month later than usual, but there was nothing to worry about, I bet you would start looking for a new boss.
 
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Hi Hunter......here's a draft response you may want to consider as a framework to modify or build on:

Dear Customer,
We have noted your request to extend your credit period from 30 to 60 days and to afford this due consideration, we in turn investigated the impact this would have on our operations before we said yes or no to your request.

This being a trucking business, you will understand that our main uses of the funds you pay us are for the salaries/wages/benefits to our drivers/dispatch/warehouse staff and the fuel and other costs for the vehicles delivering your goods.

So we asked our staff if they could accommodate waiting an extra 30 days for their pay until we got your payment, however, this was totally rejected. Apparently, they have this need to feed themselves and their families every day, pay their rent or mortgage without fail every month on time, plus meet various other expenditures on almost a cash basis. Indeed it appears delaying their payments even for a few days causes turmoil while another 30 days would be catastrophic for their livelihood.

Things were no better with our request to our fuel suppliers. In a nutshell, their response was to the effect that the 7 days credit they provided us was likely going to be shortened very soon to 3 days (because truckers were becoming “high credit risk”) and a 30-day request was just laughable. They enjoy a monopoly you see.

Things are even worse for our cash flow because what little credit line our bank provides (they also consider trucking to be high risk) is quickly eaten up by the advance payments we have to make for vehicle insurance/licenses/permits/road tolls and the working capital to provide you the 30 days credit (which really averages out to 45 days) you already enjoy.

Mr. Customer, we very much appreciate your business and we strive to provide you as good a service as possible. But you can see that to meet your request while helpful to you, will ultimately put us out of business. To this extent, we must respectfully decline your request and can only trust that your own conscientiousness will foster your understanding of this decision, and allow you to continue working with us.

Sincerely,

“Hunter”
 
That is AWESOME!!!!! with your permission....I would like to use that!!!!
 
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Truckman:
Thank you that really made my day and I will bring these points up. Again thanks lol
 
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To Packrat, Hunter, et al......

We are all truckers trying to help each other legitimately. If my little compilation helps others with the "credit issue" feel free to adapt it to their specific situation. However, remember everyone following it word-for-word will only dilute its intended effect and possibly make matters worse. The real objective is customer business preservation through giving them an insight on your own business constraints. Make your own message unique!
 
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