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Putting Teeth in Terms and Conditions

We issue invoices for promotions and pricing breaks to our vendors to support our sale of their products.
We are having difficulty collecting these funds. To cut back on orders from the vendors would be to cut our own throats by not having enough on hand to sell. Also, in many cases, we buy the product through a consolidator or distributor.
We are looking at updating our terms and conditions on these invoices in order to promote timely payments. Use of discounts for early payment are not an option in these cases.
Does anyone have any ideas?

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

If your invoices are backed by a documented agreement with the vendor that you will be reimbursed ( if you supply proof of meeting the terms), then stop invoicing them and simply raise a debit memo in AP.

That will mean your AP check run will include both vendor invoices and your debit memos and simply pay the net amount due.

If your vendor disagrees, they need to make the case to you that you owe them more.

It's call the principle of offset.

Anonymous
(Director of Finance) |

This gets tricky as we often purchase through a distributor, not directly from the vendor. We do have some distributors that will deduct for us, but most want to maintain a good relationship with both sides and wont get involved.
With those vendors that we do buy direct from, we do deduct.
Often, it feels like we are between a rock and a hard place. We need to carry/sell the big name brands and they will often agree to provide promotional monies to support these sales, but the process of getting paid goes well beyond the stated 30 day terms and we often have receivables that are over 60 or 90 days old. While recovering these monies is important, we don't have the staff to handhold and follow-up on collections in any meaningful way that will make a material difference in getting these payments faster.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
That's useful info to know. I would remove this discussion from the area of "collections" within Finance to a "business partner discussion" that includes you and your colleagues who are impacted by this (e.g. sales and operations).

Where you work thru a distributor, can you band together with other customers of that distributor to make a concerted effort? Then adopt a two stage approach:
1. engage the distributor with your fellow customers -to get critical mass
2. then get your distributor to bring the vendor in for a review meeting

Explain the issues, and find out why the vendor is so bad at honoring their commitments-maybe their process to collect, measure and calculate the promotions and price breaks is broken, perhaps their systems are poor. Brainstorm on ideas to make it easier to do business with all round.

And, make sure your own house is in order regarding the way you place orders, provide sales forecasts, etc.

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