Three Reasons Not to Stiff Your Vendors
I was reading a blog post recently (darn, forgot to bookmark it) about how to manage your business when things start going badly. The advice included cutting employees’ pay to avoid or postpone layoffs; outsourcing anything that can be done by third parties to reduce overhead; and slowing payments to your vendors. It’s the last item that got me to stop and think.
I have a customer in my business who hasn’t paid for a job we did in April 2009. He’s been a slow payer in the past, but this time it’s different. So much so that I hired a collection agency for the first time in my seven years in business. I took that step because the customer did not return my phone calls, emails or personal letters that all very politely asked for payment, or even a plan to make payment.
Here’s why I think you should not slow down payments to your vendors:
- If you really can’t afford to pay your bills in a reasonable amount of time (90 days at the most) you are already a dead man walking. It’s time to liquidate and go get yourself a job. And pay your creditors with the proceeds of the liquidation.
- People who would use the services of another business and then not pay are the lowest of the low. If you stiff a vendor, your reputation is finished. Without a good reputation, you won’t be in business for long anyway…so again, why not just go get a job?
- When you don’t pay your bills, your credit score goes to hell. You will be paying for not paying for years to come, in the form of higher interest rates for everything you purchase on credit.
And, while I’m on the subject: If you are a contractor and hire other subcontractors, it is your duty to pay your subs in full, whether or not you get paid! (Unless you have a contract with your sub that states a different arrangement.) I use many subcontractors in my business and it never even occurred to me to withhold payment to them if my client fails to pay me. How is that fair? Yet I had one of my contractors do that to me, and act as if it was completely normal. Shame on me, I suppose, for not covering this eventuality in the original contract. After a long time, my contractor, at my suggestion, paid me half of what was owed. Is this the right way to do business?
Back to the original point: If you are going to take a long time to pay your bills, for Pete’s sake, pick up the phone and explain to your clients why you are going to be slow in paying, how long this condition will last, and what you can do to offer a payment plan starting immediately. Get on your hands and knees and beg. You should beg, because you are now a beggar. There is nothing wrong with begging. There is everything wrong with being a thief. Why would you possibly want to wait, stall, avoid and can we say it, screw people who have admirably performed a service or sold a product to you? If you have to eat mac and cheese for the next five years, live in a trailer, sell your car and take the bus, go ahead and do those things. Be honorable and live to come back and start a business another day.
Contributing blogger Mitch York coaches executives who are evolving into entrepreneurs. Find York — and his personal blog — at www.e2ecoaching.com. Follow MSPmentor via RSS; Facebook; Identi.ca; and Twitter. And sign up for our Enewsletter; Webcasts and Resource Center.