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Help! Our supplier is trying to change our payment terms

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Your Business Credit
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Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question or read her prior answers in the 'Your Business Credit' archive.

Question for the CreditCards.com expert Dear Your Business Credit,
We have a supplier who requires all purchases be made with a credit card and they keep all the necessary credit card info on file. Our terms with this vendor are "net 30." They are saying that they will charge our card five days after invoice date instead of our 30 days we should receive with "net 30" payment terms. Can they do this? What are our options? Thank you in advance for your help. -- Beverly

Answer for the CreditCards.com expert Dear Beverly,
I ran your question past Timothy Jacquet, senior vice president at Apple Capital Group, a commercial finance group in Arlington, Texas.

Generally, he says, if a vendor is tightening payment terms, it is because a triggering event has spooked the credit manager. For instance, something may have appeared on your company's credit report that has made the vendor worried about being paid. "No one wants a default on their portfolio," he says.

Under such circumstances, the fine print of the credit agreement you signed may give the vendor the ability to charge your credit card in less than net 30 days -- meaning less than 30 days from when the invoice was issued. He recommends that you look back at the original credit agreement to see what it says. If you have given the vendor an authorization to charge your credit card with a signature on file, some banks will process the transaction, even if it is not in the exact time period you expected.

That doesn't mean you have no recourse. He suggests contacting the credit manager for your vendor and asking in a nice way if the company will honor your original agreement to collect payment in net 30 days as a courtesy. It is possible that there was a mistake on the part of your vendor. "Usually credit managers are honest," he says. "They'll tell you: This is the issue. We got a credit alert. Or it was our mistake."

What if you reach someone who isn't accommodating? Then maybe it's time to take your business elsewhere. "If they don't want to cooperate, in this economy you can find vendors left and right, unless they're selling something very exclusive," he says. If the vendor has not followed the agreement you signed, you may also wish to complain to the Better Business Bureau, he says.

You're not alone in facing a situation like this. Since the recession, many suppliers have tried to improve cash flow by tightening payment terms to their customers. It is still hard for some businesses to get bank loans and lines of credit at attractive rates to cover operations while they wait for payments, so they are getting less generous about extending credit to customers.

If a supplier is tightening up its payment policy, you might try negotiating a discount for paying early -- especially if you spend a lot of money with the vendor and have good credit.

Often, when companies offer customers terms of net 30 days, they will offer a discount for paying a lot earlier. You might see a notation on the bill that says "1 percent 10 net 30" or "2 percent 10 net 30," which means that customers who pay within 10 days of the invoice date will get a 1 percent or 2 percent discount. It can't hurt to ask your vendor if you can get a discount for paying in the five days they're demanding. This can save you a decent amount of money over the course of the year. Good luck!

See related: 8 steps to build your business credit profile , Will accepting credit cards help my business's cash flow?

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Published: December 30, 2013


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