I have been dealing with quite a bit of issues lately with payment terms. This is something that I find kind of funny. It appears that the only dates that are truly flexible is when one company owes another company money. It is even something that you are really not supposed to discuss. Many companies have payment terms on their invoices. Usually it is a net 30 days or net 45 days and almost always there is a penalty clause. However, the clauses are almost impossible to enforce.
This is not the same for the consumer credit world. If you are one second late paying a credit card or a bill, there are late fees, percentage increases, etc. There is no grace period for an overdrawn bank account. The consumer has no choice but to pay. If they do not pay, then there are collection agencies and other means to recover their money. I once received a notice in the mail that I owed $0.04 to a company. It took them $1.35 in supplies and fees to send me the notice! When I disregarded the notice, they threatened to send me to collections. I stopped it there, but I did kind of want to see if someone would actually call me for it. But then again, I knew that there would be $100.00 worth of fees put on top of the collection activity, so I just taped 4 pennies to an index card and mailed it in.
However, businesses are not the same. I just watched a thriving business go bankrupt because their primary customer withheld payment for no apparent reason to the point that the company missed a payroll. If you try to enforce penalties, then many companies refuse to pay it. Also, collections seems to cost more than the recovery of the money. It is just weird.
It is interesting to watch a business fight for longer payment terms while never honoring the original terms. They will ask for a change from Net 30 to Net 45 and have payment averages of Net 70. As a small business, I often have to make phone calls or inquire about payment. I normally get a very polite response, but it is also very nonchalant. I will call and say something like, "I am inquiring about invoice X that is 15 days past due. Can you let me know when this will be paid?" The answer is, "Oh yes sir, we are cutting a check a week from Friday and will put that in the mail." You are so happy it is going to be paid that you generally accept the terms.
I know as consumers, we can act the same way, but there is also consequences that come as matter of fact as the behavior. If businesses try to enforce it in the same terms, it strains the relationship or ends it. For many companies, late payments are an honest mistake or are late by a few days due to process. There are other organizations that pay late as a strategy. I have personally seen a memo of one organization that outlines how to string their vendors along maximizing the "use" of their funds.
I also worked for a company that incented us on making sure that we ran a 45 day services to cash metric. This meant we had 45 days from the day that we performed the service to collect payment. We were incented on invoice on a monthly basis on good faith. If we had an invoice go over 45 days services to cash, the company would pull back the incentive amount on your next check. If you collected the money after the 45 days, then the company would give 50% of your incentive back. There were many times that I was on my client's site at 44 days begging for a check with a FedEx envelope in my hand!
As a project manager, we are to ensure that contracts that we oversee and manage are compliant to the terms. For most, this means to ensure the deliverables are complete to the specifications provided. It usually ends there. As responsible project managers, we should make sure that all terms are being adhered to. As PMI states, the project manager is responsible for the relationship with the vendors and that both parties are treated fairly. This should include payment terms as well. What are your experiences?