Bad Paying Customer

[raywillden]

I run a smallish recruitment (contractor) company and have one customer who are crucifying our cash flow at them moment.
We have decent profit margins with them, and they represent a large chunk of our turnover (probably about 20%). The problem is payments are really slow. They currently owe us about 180k EURO, 110k is insured, but the rest is not.
We’re thinking of dropping them all together as a customer, do you all think this is a good idea? Are they likely to be difficult about paying what they owe us?
The customer is French, we’re based in the UK, so legal won’t be easy...

[Trophy Husband]

Run a credit check on them? Easily done.
I run credit checks on all of my clients monthly. Deep checks. Not expensive.
I'm assuming your insurers do the same but things change incredibly quickly with lines of credit sometimes overnight. Ask me how I know!

[raywillden]

Yea, we know their credit isn’t great, but we have 110k already covered and insured. We can’t get any more.
It’s more a question of should we walk away from the customer? I find it very hard to turn away business and of the 180k odd outstanding is over £30k profit...

[Europa1]

I don't envy you. When I was in private practice we had clients who were st payers - effectively using us as a cashflow lender. They're a significant part of your revenue but the key thing is surely what's the margin?

[B9]

Do they always pay eventually, but consistently pay X days later than your payment terms?

You mention £30k of the £180k is profit; Are you paying the salaries for the positions you're filling and these aren't finders fees?

[raywillden]

We’re a contract recruiter, so yes we are paying out the weekly wages for the contractors.
Their payments are sporadic, sometimes we get 50k in one go, currently we’ve had nothing for 2 weeks.
Margin is around 15% gross, but with credit fees that is being eroded.
The problem is that margin represents about 20% of the company GP, so they are significant (although irrelevant if they’re not paying!)

[alfabeat]

Have you been to see them? Face to face - to discuss the issue? What is your personal relationship like with them? Perhaps, they don't realise they are causing you grief. I'd set up a meeting with them ASAP and start building the personal relationships at the right level, that could make the difference. Would be a shame to lose this good margin business.

[Some Gump]

From what I can see, 180k owed, 110k insured, 30k GM.

So right now, you’re at risk for 40k if they go bump. What with the current economic reality that is corona, right now you are exposed massively.

Personally, I’d have a crisis meeting, aimed at getting a payment that gets you back to not exposed, then never move past that exposure.

IMO you’re massively playing with fire right now...

[Turn7]

Some Gump said:

From what I can see, 180k owed, 110k insured, 30k GM.

So right now, you’re at risk for 40k if they go bump. What with the current economic reality that is corona, right now you are exposed massively.

Personally, I’d have a crisis meeting, aimed at getting a payment that gets you back to not exposed, then never move past that exposure.

IMO you’re massively playing with fire right now...

This, all day long.

Dont let anyone owe you more than you can afford to write off.......

[raywillden]

It’s one of my business partners clients, he knows them well (and has been to see them many times) and they have been informed how much pain they’re causing.
I think you have confirmed my feeling, which is that we should get out of it as soon as possible and get as much out of them as we can.
I am suggesting pulling all contract staff this week, and seeing what happens. I think we might both be off to France shortly!

The frustrating thing is that 70% of the whole business is from ‘my’ clients, and they all pay on time! However I’m a bit crap with running the financials (payroll, tax etc) so I couldn’t do it without him, but his client is causing the issues!

[bristolbaron]

At the very least I’d be renegotiating terms with a healthy discount for quick payment and an equally healthy staggered charge for late payments.

If there’s no reason to pay, they’ve proved they won’t.

[Terminator X]

Can't you stop all work until they pay up? Seems reasonable in the event of non payment for services already rendered.

TX.

[raywillden]

Terminator X said:

Can't you stop all work until they pay up? Seems reasonable in the event of non payment for services already rendered.

TX.

This is basically what I think we should do. The worry is that this will force us to get legal as there will be no reason for them to pay once the relationship has broken down.

[Mark-C]

raywillden said:

It’s one of my business partners clients, he knows them well (and has been to see them many times) and they have been informed how much pain they’re causing.
I think you have confirmed my feeling, which is that we should get out of it as soon as possible and get as much out of them as we can.
I am suggesting pulling all contract staff this week, and seeing what happens. I think we might both be off to France shortly!

The frustrating thing is that 70% of the whole business is from ‘my’ clients, and they all pay on time! However I’m a bit crap with running the financials (payroll, tax etc) so I couldn’t do it without him, but his client is causing the issues!

Seriously the financial stuff ain't that hard if you focus on it but, if you don't have time, then there are many people who will do it for you as a resonably priced service. Certainly enough to go it alone without your business partner if you can take "your" clients withh you. Leave the partner to take the risk ...

[StevieBee]

raywillden said:

Terminator X said:

Can't you stop all work until they pay up? Seems reasonable in the event of non payment for services already rendered.

TX.

This is basically what I think we should do. The worry is that this will force us to get legal as there will be no reason for them to pay once the relationship has broken down.

That maybe true but at the same time, they appear to be taking the view that there is no reason to pay you with the relationship intact. Forcing the issue makes no difference to your current situation. They are legally obliged to pay you regardless. I wouldn't hang around either. At the moment, we are still, technically, part of the EU so pursuing debts with a European company is no harder than a UK one. Depending on negotiations, that may not be as easy in the future, whenever that may be.

[raywillden]

Thanks for all the advice. I’m going to have a chat with my business partner in the morning. I’m basically going to push that we stop all work and demand payment.
I’ll try to keep updated!

[Deep Thought]

raywillden said:

Thanks for all the advice. I’m going to have a chat with my business partner in the morning. I’m basically going to push that we stop all work and demand payment.
I’ll try to keep updated!

I cant see your contractors being terribly pleased about that. i know i wouldnt be.

[xjay1337]

raywillden said:

We’re a contract recruiter, so yes we are paying out the weekly wages for the contractors.
Their payments are sporadic, sometimes we get 50k in one go, currently we’ve had nothing for 2 weeks.
Margin is around 15% gross, but with credit fees that is being eroded.
The problem is that margin represents about 20% of the company GP, so they are significant (although irrelevant if they’re not paying!)

Have you at any point discussed payment terms with them?

Like are they on a 2 week billing, end of month, 90 day etc?

If they are making a habit of not paying properly , and yet still provide 20% of your total business (a huge chunk!) i'd be careful about going in too gung ho

I would Explain that you can't be in a position to risk £40k and due to concerns with Corona virus as well as healthy business cash flow etc that you need to move to weekly / bi weekly / monthly payment with a maximum arrears of a nominal amount, for example £10k - otherwise you will have to stop supplying your services.

So that you still show some leeway for them being a valued and trusted partner, but also set a firm & fair expectation regarding payment.

[Deep Thought]

xjay1337 said:

raywillden said:

We’re a contract recruiter, so yes we are paying out the weekly wages for the contractors.
Their payments are sporadic, sometimes we get 50k in one go, currently we’ve had nothing for 2 weeks.
Margin is around 15% gross, but with credit fees that is being eroded.
The problem is that margin represents about 20% of the company GP, so they are significant (although irrelevant if they’re not paying!)

Have you at any point discussed payment terms with them?

Like are they on a 2 week billing, end of month, 90 day etc?

If they are making a habit of not paying properly , and yet still provide 20% of your total business (a huge chunk!) i'd be careful about going in too gung ho

I would Explain that you can't be in a position to risk £40k and due to concerns with Corona virus as well as healthy business cash flow etc that you need to move to weekly / bi weekly / monthly payment with a maximum arrears of a nominal amount, for example £10k - otherwise you will have to stop supplying your services.

So that you still show some leeway for them being a valued and trusted partner, but also set a firm & fair expectation regarding payment.

+1

Expecting your contractors to down tools and thus they dont get paid for any work going forward and the client stops getting work done seems a very good way of entrenching the situation and giving the end client no incentive to pay the outstanding bill.

Better - as you're suggesting - to discuss it firmly with them and reign them in, or reduce the risk over time by not supplying future services to them as contracts end / contractors naturally leave.

[CoolHands]

Start putting your prices up with them. 30% should get their attention