Selling Learning – Learning Selling

Only idiots pay their bills before they have to…

I’ve been paying bills this morning. I detest paying bills; it’s a lot less fun than writing blog posts.

And the ones I hate paying most are those for which I have the most generous payment terms: 3 months have passed since we did that poster campaign / received that book order. You can’t really want me to PAY, after all that time???

It’s well known in the business world that only idiots pay their bills before they have to. That’s because credit, from suppliers, staff (in the form of salaries not yet paid), and customers (courses paid for up front), means greater “working capital”, the life-blood of any enterprise, whether micro or global.

Paying your bills early, say the day they pop through your letter box, simply diminishes the amount of working capital you have, and consequently increases your financing costs (bank interest on the overdraft, for example) and the risk of going out of business because of an unforseen liquidity crisis.

So, only idiots bay their bills before they have to. But the key words here are: “have to”.

Your “payment terms” are what you agree with your supplier regarding when you have to pay. Anybody giving you less than 30 days credit is taking the piss. 60 days is reasonable, 90 is good, 120 is great, and so on. Obviously, you have to pay your staff monthly, but you could push it back a few days, maybe. After all, the monthly salary bill is one of the biggest out-goings and can empty your bank account in an instant!

“Have to” then is, in part, subject to the contract, written or implied, that you have with your supplier or employee. But you then need to ask yourself how enforceable those contracts  may be. Are the suppliers who are desperate for your business REALLY going to do anything if you’re a few weeks / a month / two months late with your payment? Possibly not. Probably not. It depends really.

And your staff? Well, they can moan, but it depends a lot on where they’re from. Italians, for example, are quite used to not getting paid until the middle of the month after. If you know this, wouldn’t you be an idiot not to take advantage of it to give your working capital a bit of a boost?

When all is said and done, “Don’t pay your bills before you have to” is a pretty good rule of thumb for a beginning manager or new business owner.

But there is an alternative point of view:

Reasons to be an idiot

• maybe you don’t need the working capital? There’s only so much point to having cash in the bank. Could you trade it for:
• goodwill and trust? Paying your staff promptly is a strong sign of your competence and reliability. Wouldn’t it be nice to have people FIGHTING TO WORK FOR YOU because you’re such a great employer? And suppliers? Well, if you pay regularly on time, perhaps you could persuade them to give you more generous payment terms? Or lower prices?
• save yourself a lot of hassle: every phone call you or your staff have to take from an angry supplier is time wasted and blood pressure raised. Is it REALLY worth it?
• your bills getting paid regularly, in a predictable way, is sort of  like the heartbeat of your business. If there’s any doubt at all about your company’s financial health, its pulse will be felt for signs of illness or possible early death. Skip a few beats and you’ll be in trouble!
• build up credit in case of emergencies. Be a good guy, don’t mess people around. Then, if you have problems, hope they’ll cut you a little slack, rather than setting their lawyers on you.
• peace of mind. Get in the habit of paying on time, you won’t have to worry about unpaid bills, will you?

What this all adds up to is the simple idea that your prospects in business and your reputation go hand-in-hand. Build your reputation, enhance your prospects.  Growing your business while busily destroying your reputation as a reliable partner is NOT a good idea in the long term.

So yes, there’s a cost to being an idiot, but there are benefits too.

And now, it’s back to paying bills (on average, around a week late!)