You cannot afford to be the bank for your clients…do the math

As credit disappears, and it is all but gone, as every business owner is scrambling to collect receivables and postpone payables, we are in this giant tug of war.

Still trapped in the misguided belief that we must offer long payment terms or you will lose the business. So net thirty in many instances becomes net 45 or net sixty and this is deemed ok, as that’s the way it has always been done.

This may have been the case, although it is a concept I never believed in, but let’s do the math.

Payroll comes every week, along with the taxes, overhead requirements rent, phones, utilities, etc, comes monthly like it or not. Thus if you are selling net 30 which becomes net 60, you need two months of payroll and overhead to tread water without any reserves. Not to mention the huge investment in the cost of goods, inventory, work in process, rejects, etc.

Few businesses I know have that much available capital. So why are you selling on net thirty and allowing net 60 terms? You cannot afford it. It’s an act of futility, or make that financial suicide. If allowed to continue this policy, it will put you out of business. Get smaller if necessary, but get paid.