How to Extend Your Payables

I’m channeling Abbey Hoffman or Jerry Rubin and feeling a little subversive. I thought I’d turn the tables and describe how you can delay payments to your creditors based on what I know about credit management.

Negotiate longer terms. Everyone is doing it. The largest customers are demanding extended terms from their vendors, in lieu of getting bank loans. If your vendor has thirty day terms, ask for sixty or ninety day terms. Do not ask the credit department. Go directly to your sales rep or the sales manager. Tell them you’d do more business with them if you had a little longer to pay. Let them fight it out with the credit manager. There’s a good chance they’ll accept your conditions because companies are lusting for sales.

And here’s a little secret that will help you extend those terms even longer. Many computer generated aged trial balances are set up to age receivables on the basis of due dates. Therefore, your September purchases, if you were granted sixty day terms, would sit in the current column in October and November. They would show up as only thirty days past due in December and sixty days past due in January of next year. Now, if your vendor’s collection department is typical of a lot of companies, no one is going to look at your balance until January. So, here’s another tip:

Do not pay until you are called. This is the “if they want it they’ll ask for it theory.” Regardless of the established terms of sale, some companies are perfectly content with waiting for their money. Or at least they seem to be content, because they’re not insisting you pay promptly. So, you wait and under the above described scenario, your sixty day terms have turned into one hundred day terms. Not bad.

Do not pay finance charges. So you are past due, technically. If no one is calling you, are you really past due? Finance charges, interest, late fees, whatever the term, are usually assessed automatically at the end of the month. Ignore them. Don’t call up the credit department or the sales department and make a fuss about them. Just ignore them. As long as you are paying everything else and you are continuing to buy, after awhile, they’ll go away. If they don’t and somebody squawks, tell the pest you don’t pay finance charges and see what they do. No one sues or puts customers on hold for non-payment of finance charges. Only banks to that.

Make arbitrary deductions. Do not take a percentage that will look like a discount. Someone can figure that out quickly enough and challenge you. But if you were to just subtract an amount, particularly an amount that does not match anything on the invoice, there’s a good chance someone will eventually write it off as an adjustment. You might get a call, but when you do, simply say you paid what you were told to and suggest they take it up with the sales rep. The partial amount may stay on the books for awhile and it may even accrue finance charges, but ignore both of them. Someone will probably write up a claim and send it to the sales rep, who will ignore it. The longer it stays on the books, the harder it is to reconcile and resolve and eventually they’ll write it off. Again, it helps if you are buying a lot and paying for most of it timely enough. In this way, you’ve gotten yourself a pretty good discount.

Pay Some of the Invoices, but not all. This is not the same as taking arbitrary deductions; you can still do that as well, but rather skip a couple of invoices. This will test the collection department. They may figure out which ones you’ve missed and send you copies. Right away. Or, if the bank applies the cash, or cash is applied on a balance forward basis, or collectors only call on total amounts and not the specifics, it could take a long time before it’s recognized to be a missed invoice or two, or three.

Lie. Leaving ethical debates aside for the moment, telling an inquisitive creditor that the check is in the mail when it is not, helps you buy time. How much depends on the frequency of the follow up by the collector. Another entire month could plausibly go by before someone calls you back to suggest the perhaps the check was not in fact in the mail. Possibly, you could gain another month by responding with another lie and replying that you will stop payment on the first check and re-issue. The only way to know is to try it once. It’s just a little white lie after all.

Deny the Balance. When someone finally gets around to calling you for money, your first response should be to simply say, “What bill?” Tell them you don’t have any invoices and you need copies and while they’re getting invoice copies, have them send you the proof of delivery as well. Or, ask for these after you’ve received the invoices and you’ll pick up another week or so. If your vendor has a modern system, you’ll have duplicates in short order, but if your vendor is not very sophisticated, if could take them several days to several weeks to put their hands on the documents.

By-Pass the Credit Department. Should you find yourself put on hold or C.O.D. by the credit department because of your supposed delinquent status, appeal to your sales rep, or the sales manager or better yet, the C.E.O. If it’s payment they want, commit to one. Don’t worry about how much of a payment or when you will actually send it. These people just want your business and they need something to tell the collectors when they also tell them to back off. This will buy you additional time, though it won’t make you any friends in the credit department.

FAX the Check but don’t actually mail one. This is meant to “prove” that you have either already mailed a check or that you intend to mail one that you have processes and signed. This works great if checks go to a separate location than where the collector is calling, say a lock box for example, or a corporate headquarters. Since the customer is always right, someone will have to search high and low to find the original check before getting back to you, asking for a replacement check, because they must have lost the first one.

These are only a few ways customers delay payment. Basically, they take advantage of the inefficiencies rampant in so many collection departments. A well run, well organized, well automated department responds to these issues quickly and makes it less likely for the customer to get away with these little tricks. Strategic Credit Management Solutions can help you build a well run collection department. We’ve been doing it for better than thirty years now. We’ve seen and heard all of the excuses and we know how to respond, proactively. See our website http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.