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Running your business on someone else’s credit

September 14, 2011 By
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Business is business right?

And so many businesses run their businesses based on credit from another business. It’s the way of the world. For the last 4 years businesses have steadily been paying late. 35 days has increased to 60 days. And the NHS have dragged their heels in paying for a specialist delivery for 2 years now. Except for our courier business. We take the money up front.

Back in 2007 we got burnt by many companies booking our services and then folding 5 weeks later, and restarting under a new name. It cost our business £50k in bad debts. Last year our bad debts were £380 from a local business man who we then had to CCJ, much to our annoyance.

You see when we took the hit of 50k we had the option of folding our business and writing off the debts and the money we owed. We sat down and thought about it long and hard. Non payment meant we were taken to court for non payment by our suppliers. The judges are not supportive in giving time to pay just because we haven’t been paid our outstanding invoices.

We took the firm decision that if you wanted something delivering then you had been paid for it up front, there was no reason why you had to run your business on our credit. We pulled our business back from the brink, we repaid what we owed and we took the hits and absorbed them when they happened to us. Not because we could afford to, but because we are decent people in business.

Decent doesn’t get you anywhere in business

Nope, decent doesn’t get you anywhere in the courier business. The customers have no idea on how to buy on value. We recently submitted a tender to a local university, we explained how we use sustainable employment techniques. We explained how and why we were ethical in business = paying decent (above minimum wage) and regular wages with holidays etc factored in. We shared our fuel efficiency and environment policies (which enabled us to win awards).  We fairly calculated costs and worked out that we would make £20 a week profit on this job.

£20 a week. Every driver paid a fair wage, treated with respect and all laws compliant.

But it was too expensive for them, they said they went on value but in their rejection they admitted they went on price.

I don’t know what the courier who won the job was charging and I don’t care. I do know that if something goes wrong they are not like us, they won’t absorb the hit and carry on. I know they will fold, because they also run their business on someone else’s credit

When did business cease to be honorable? When did people stop respecting their commitments and only think of the money in their pocket?

Kev

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Filed Under: Business, Kevin Arrow, Latest:, Money
About Kev

In between running his same day courier service, Kev blogs about driving, fuel saving and road safety as well as safer, more efficient delivery services on his own blog and mentors start up courier businesses.

  • http://twitter.com/Stephen_Bray Stephen BRAY

    Having built a number of businesses from the floor, I would have built them from a kitchen table if I had one at the time, I have no sympathy for those who use others money to build up their companies, and less for those who fail to pay their invoices on time.
     
    By far the worst offender when I worked regularly in England was my own bank. I won’t name and shame them because they did help me in the distant past, and they did employ me for over two years to provide them with consulting services.
     
    But Gad, 2 months, 3 months, up to six months would pass despite reminders before any money was forthcoming, whilst I knew that if I put a toe over the line I would be charged interest.
     
    Of course you are right to operate according to ethical standards. People get what they pay for and, to use another cliche, what goes round comes round. Most likely the other company will fold . . . but that really isn’t your problem.
     
    A friend once bought a print finishing company. It was an established business on a central industrial estate and they paid handsomely for it. When customers stopped paying on time my friend closed it. He retained his staff and premises and reopened the next day as a new legal company. He wrote to all the customers and informed them that the new terms of service required cash up front, and he insisted upon it.
     
    Initially he lost some customers, but some remained, and others returned when they found others couldn’t deliver to their satisfaction. All paid up front.
     
    Unfortunately my friend became disenchanted with the print finishing business, not because it was unprofitable, he just didn’t get off on folding cardboard or stuffing envelopes. By the time he sold the business he was practically certifiable!
     
     

  • http://www.houses-for-sale-in-spain.net grahunt

    Brilliant post Kevin. Councils in Spain have been doing the same for years. The debt that the majority of councils here have with their suppliers is over 100% of is years income. Some services are stopping supplying to the local, regional and national government and will not compete for public tenders because there is no possibility of prompt payment.

  • Shaun Gisbourne

    What an incisive piece this is Kevm thanks for writing it. It ties in a little with the Guest blog on capitalism and the world order. A lot of people harp on about sustainability but when the moment comes to put their money where their mouth is, they reveal their true colours and, in so doing, prove that the furthest they can be bothered to look is the end of their noses.  

  • http://www.kipfx.com Kip (of Kip FX Design)

    Kev, I need to write something ‘almost’ along this lines, around a £800 sting this month due to something similar, but the changes I am putting in place will eradicate this in the future . . . 

  • http://www.facebook.com/profile.php?id=592159313 Dan Knowlson

    Good article Kev. It never ceases to amaze me how many businesses say one thing but then go completely against that, usually looking only at the bottom line and the short term benefit that offers. Much more important is a long term relationship and the added value that adds to both businesses involved

  • Kevin

    apparently we dont get this problem graham, the directive from the gov here is 14 day from invoice.

  • Kevin

    dan, very true, ive found recenytly people are looking at the end costing rather than the service offered. This is madness. The uni tender we put in was for 3 years rolling to 5  and we factored all increases in. I did write back and be asked to be put on thier emergency supplier list incase thier tender winner didnt ‘deliver’

  • Kevin

    I despair at times shaun with these people, they go through the motions yet more often than not dont even understand thier own tenders.

  • Kevin

    Stephen, if we are to offer a top class service that follows the rules and acts in an ethical and appropriate manner minimum wage is not an option for us.

    I have no interest in my ‘competition’ as i know how they work and how thier driver damage their reputation.

    I will continue as I have done for the last 9 years and will win some which is great and not others which is their loss

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