How do I get a person off 7 Day terms and on COD? Can I do this and what is the best way?
I supply cakes to cafes and I initially agreed to allow one of the cafes I supply to be on 7 day terms for payment. However, this is not really working for me and i have since decided all places supplied my product to will be COD. As this is the first time I have done this, I'm not sure if it is proper business practice to now request COD from this one person after one month of supplying them with my product. What is the best way to ask this person to change without risking them from stop ordering from me?
Provide them with notice in writing by letter AND email to the appropriate manager; and, I'd actually suggest making up stickers that say something like "Starting December 1st, all deliveries must be COD" and sticking them to the boxes you deliver in.
Contact them and let them know that you are changing your terms for all customers and that their news terms will be COD. I would give them a months notice so that they can adjust to the change and it lessens the impact on their cash flow.
I would make a generic letter to all your clients stating that due to circumstances out of your control, you are not able to offer the 7 day terms anymore. You are now requesting all orders to be paid upon delivery. Thank them for their understanding and express appreciation for their continued support.
Chances are, if they dn't have the money they won't pay anyway
As a business owner, sometimes we do need to evaluate our clients and customers and as tough as it is we need to be willing to fire them. Restaurants in general are a tough business and if you are experiencing issues with payment it is likely not to improve. Having sales for the sake of sales is not conducive for a growing business and if you are not getting paid, perhaps it may be worth considering cutting your losses at some point.
As it is already September and you do not want to risk losing a client, you may want to consider implementing your change effective January 1. Will it make such a big difference to postpone implementation 90 days versus 30 days (again this depends on your volume)? It makes for a fresh start to a new year and is clean. Have a conversation with them and put it in writing. If you alert them to this change now you give them ample time to make an adjustment to their own cash flow and you also have time to continue to grow your business so that you may be able to replace them with more solvent clientele. Rather than losing a customer, you may only see a reduction in volume to them. No business wants to be tied to the fate of a single client so it is not necessarily a bad thing as long as you can continue to pick up more clients and grow your business.
Make sure that all of your contracts moving forward stipulate that your business is COD. Do keep in mind that just because you are getting a check, it does not mean that the check will be good. A bounced check can wreak havoc on your own business depending on how tight you are and could be far worse than slow cash flow.
Another option depending on the volume and your profit margin is you may want to consider adding merchant services. Expedited payment may be worth the "convenience charge" if it ensures your own cash flow. By accepting credit cards, you enable your customer to push terms out to 30 or more days for themselves and you will have the money in the bank much sooner. Also the ultimate collection becomes someone else’s problem as you are paid.
Sallie, have they stuck to the 7 day payment terms? If they have, then I think you will need to discuss it with them openly.
It may be that they might accept a temporary discount over a number of weeks to move from 7 days to COD. Or you might offer them a discount for early settlement of your invoice.
You have to bear in mind that a Café is a cash basis the same as you, they may have to sell the cake in order to be able to pay you.
Be honest with them, explain why you need to move to COD, if they like your product then it will work out well for both of you, they get what they want, you get what you want.
This is your business so you are entitled to change the protocol for how you operate. With that said, these are your customers, so it is important to discuss this with each of them, the reasons behind it and give them sufficient notice before changing the terms. My suggestion would be to make the change announcement then give the customers a month to start compliance. If a customer disagrees and complains and you worry about losing them, then you could potentially work something out with them for a longer period of time. I shouldn't be terribly difficult if you are honest and work hard to make sure they know how it will help your business as well.
There's no good way to change terms. If you gave your customers a written agreement, before you started a business relationship with them, you'll need to send them a new agreement.
I agree with Alan. You need to be honest about you need to move to COD. However, be ready to negotiate a little on the effective date of the change. Determine ahead of time what you can financially do concerning an effective date for the change in terms. If this is the only customer not current on COD, I would discuss it with them directly, with a follow up letter.
You should be providing an invoice that requires their signature of acceptance of the product already. I would make sure to change my terms on the invoice and require their signature of acceptance upon delivery. This should be standard operating procedure.
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Read the answers carefully. They are right on the numbers.
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You are the Vendor, the terms of Credit are yours.
You are entitled to create what is known as a "deed of variation as to terms and conditions of trade". In laymans English, writing to the would be Purchaser that you propose to change the terms of trade, whether that be notice of delivery and times, or in this case terms of payment.
Either way, we are dealing with a variation of the original contract terms. It is up to your client/customer/stock-holder to agree to abide with these terms or alternatively reject them. In the latter case that means that by inference they are terminating the trading agreement with you. (Supply of Goods and Services Act).
As Annie Layer states below, these deeds of variations should be notified in writing, and counter-signed by your client as agreed upon. People are two quick to jump to automation and a signed document in a persons own hand-writing has more (legal) authority than a reply by e-mail. Anyone can be sending an e-mail even if it is under another name of the e-mail acccount holder. E-mails are not fully accepted in law as supporting documentation to be exhibited to a Summons.
A properly signed document in hard copy served on the client carries more authority than an e-mail. People have become technlogy brainwashed, but whether you like it or not the Courts are always at least 50 -100 years behind reality. In fairness their cynicism is well found as an e-mail is far from secure, despite the assertions of the e-mail operators and Mr Bill Bates of the USA relating to his precious invention of Windows.
As we have seen, Programmes can be broken in to by hackers, machine errors and "bugs" which wipe out the entire programme. IT is not safe as people would love to suggest.
Merely write a letter, stating that your terms of trade are being altered and supply a copy of the amended terms for their reading and return duly signed as a variation to the original terms. Make that very clear in the prologue to the new terms (This copy is a variation of the terms and condtions signed by both parties on ...[date] and the following documents and trade now come in to force with immediate effect).
It is up to the would be counter-party to accept those terms of trade. If they do not, you are entitled to terminate the line of Credit and require that they trade on a cash with order basis. Do not be black mailed in to the old excuse that "we will take our trade elsewhere", the other issue is the parties' history of trade with you. If they have been poor payers in the past, it is unlikely that they will sign new terms.
Don't be worried about losing trade. In to-days market with thin margins and obsecenely high interest rates charged by banks, and therefore the cost of servicing the debt created by your Credit Terms, the risk of loss is even higher. If you have to write off £1000 and you are on a margin of 5% (optomistic, but for ease of calculation) that write off requires
£20 000 worth of sales paid to terms. That is before your include the 19% APR -pro-rata cost of servicing that (what is effectively a loan to your client) debt before write off.
I accept that you can reclaim VAT and charge off the loss agaisnt turnover and profit, but all these do is reduce your liabiity to tax (in whichever form) not directly affect your profit. The next question you neeed to ask "why do they want to change the terms of trade?"
Before you change your terms, if your counter party is a Limited Company, it is always worth taking a company search at Companies House and "pull" their accounts. For the sake of £25 it is worth it to see their trading status, in particular Balance Sheet and Profit and Loss Account. From that information you can work out how creditworthy they are.
We are talking about risk here: if the client is a risk to you, then no matter how much they order and look good on your Sales Ledger, if that ends up going to Court and receivng an Installment Order, or written off completely as it is clear that the debt will never be recovered due to insolvency. As I mention above write offs are very costly.
If the client rejects your variation of terms you have to ask yourself : why ?
Do not be blackmailed by large PLCs that they are so important to you and you cannot live without them. As we have already seen over the last 5 years some once regarded large operations have gone to the wall, taking many small businesses with them. If the cost of servicing their trade becuase they will not comply with your terms may be greater than the original profit that you expected, and in the case of total loss, unsless you have Credit Insurance, you are in serious difficulties.
I suggest that you research the market to see what their trading history is like (Credit Circles are excellent for this purpose) including searches at Companies House, preferably taking two years returns so that you can see a trend in the accounts.
As much as you have "Caveat Emptor"; equally "Vendor Emptis" applies. Basically look before you leap: a sale is not a sale until it is paid for.
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