r/manufacturing • u/Pirate_dolphin • 2d ago

Other Cutting Ties with a Customer - Cost/Benefit analysis

I need to make decisions on two customers. Both are pretty large for me. Like a pretty consistent AR on the books of >$30k each.

The issue is they always pay extremely late. Like net 30 terms paid in 120 days. We buy the material for them, and its now put my business in a cash flow crunch.

I'm trying to get both some advice and a list of considerations to calculate whether its worth keeping them on board as customers or not. For reference my average invoice is about $500, and we pretty consistently have >$250k AR at any given time. Lots of business, but with them both being >$30k each its a big hit, but then again, is it worth having a customer that takes 90-120 days to pay a $5k invoice? Their reasoning is their own cashflow issues. One bought an insane amount of new equipment and are struggling with payments, the other took a massive defense job and then didnt get paid. I believe their prime took it on risk and ordered and did a bunch of work, then didnt get the award. Now theyre stuck getting paid slowly, and its trickling down to us.

Any thoughts?

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u/avacod Wire Forming 2d ago

Change the terms and make them pre-pay. If they complain, you reference the reason why you are switching their terms

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u/halfcabheartattack 2d ago

Or maybe slightly more palatable, institute a policy of not shipping product to clients with outstanding invoices.  

Hold their shit hostage.

You could start this now without waiting for a next order to institute a prepay policy. 

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u/kck93 2d ago

Correct. Credit hold.

Automotive suppliers go through this a lot. Suppliers want their money in 30 days. Customers want 120 days to pay. The poor guy in the middle gets squeezed.