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toolmaker76
10-10-2010, 11:53 PM
I ran into an old boss of mine who still works at a factory where I used to work; it has been almost 20 years since I worked for him, but he is familiar with my skills and the quality of my work. I told him that I was starting my own machine shop, and he said that they were wanting to have some of their work evaluated on price.

I spoke to him on the phone a couple of days later, and he set me up with the people (a separate vendor) who will be ordering; this week I am supposed to pick up a big stack of prints to quote.

One of my concerns just starting out is cash, or rather the lack of it. This company is known for paying on a 90 day cycle. I have a little cash reserve, but with a lot of work dropped on me too quickly, it could eat that up buying steel and supplies, and then I would be dead in the water until I got paid. If I got some work that came in a little at a time, no problem, but this is a concern. The company has a good reputation, and I have actually worked on the stuff I will be quoting while working for other companies (no longer in business, more owner related than economy). It is good work for a small machine shop, and it keeps repeating (mostly spare parts for the factory).

I asked him about what kind of time cycle for payment we are talking about, if he knew what the vendor did as well. I told him that my quoting price would have to reflect that.

After I got off the phone, my wife expressed the opinion that it was unprofessional to ask, that our cash flow is not their concern. I consider my old boss a friend, and I know he was not offended by the asking.

To me, it is what it is; I would not cry the money blues to the customer, but I think it could very well be suicidal not to address the timing of payment.

Just wanted to get some other opinions/ experiences on this.

Paul Alciatore
10-11-2010, 12:25 AM
They are taking advantage of the companies they do business with by delaying the payment for three months. You have to play their game. If you want the professional way to do this, here is my suggestion.

First, just tell him that you would be very happy to quoter the jobs.

When you do quote a job, add interest for 90 days to the price. Credit card companies charge as much as 24% or even more per year so 2% per month X 3 months or 6% should be reasonable. Don't show it as a separate item, just part of the basic quoted price. If you can't get credit for that rate, then use whatever rate you can get.

Then be generous and offer a 6% discount for Net 10 days. 4% for Net 30 and 2% for Net 60. Let them choose. And you are covered for the interest on the money until it is paid.

Throw in an additional clause that adds additional interest if the bill is not paid in 100 days: you guessed it, an additional 2% per month.

You could even increase it a bit to perhaps 3% per month and make a bit extra for the additional effort of carrying their debt.

Put these terms on the quote and DO INSIST on a manager's signature on the quote before starting the job.

I have worked for people like this. They know what they are doing and they will know that you are doing. It is unspoken. It is unasked. They will respect your business skill for doing it this way.

Rustybolt
10-11-2010, 12:32 PM
Paul is spot on.
We had formal quote forms and on the bottom of the form was a statement much like Paul is suggesting only ours was 1.5% a month after 30 days.
You might want to ask them what Items have priority and stagger the quotes over a couple of weeks. That way you're not left flat footed.
Good luck in this. It's nice to see somebody making something in this economy.

cuemaker
10-11-2010, 12:39 PM
Also, your supplier may give you 60 days also.... which would let you purchase material and start the job...

As a store manager for Fastenal, I see in it day in and day out, net terms competing with net terms...