why dont purchasers understand-legit danger of not getting paid 4

[alcap]

this is one of the few businesses i know where
goods and services are turned over remotely (in "good faith" )with no credit management process in place.
I see that having to end because of the market place.

We haven’t and don’t bill until the work we are billing for has been done.
Our insurers and association advises all engineers to get retainers or deposits under
$10000 for these very reasons. all other professionals require payment on the spot before issuance of accounting Dentistry or any other service.

Once the invoice is submitted and knowing how long YOUR SYSTEM takes, they need to be approved on the spot to meet a reasonable payment timeframe. Otherwise you have to fix your process.

I understand you need protection for you boss. . Purchasers have lost little or nothing. Don’t have the goods , but haven’t paid for them either. Purchaser loses nothing except a delay. We have lost far more. You want protection for your boss and have it. But it’s a two way street.
We have little or no protection once the goods are issued.
If we start, do the work and you pull the plug we have lost all the time we spent. We have to do the work to get paid. This is a double whammy, losing the payment AND the time lost from earning a living elsewhere. Purchaser loses nothing more than both parties lost, the initial setup and startup time which we have put in also.

How can we pull the plug on work we have already done.
After interim billing We keep working to complete the project. This is normal process everywhere.
It is not correct to say we would walk away from the final balance of payment. The work continues on in the expectation of payment. It is too inefficient to stop and start. The margins are too slim..
On this job we are already way over the proposal price due to having to revisit it twice.
Its so much hassle again even to get paid to proposal amount let alone to seek scope change payment above the PO amount.

Furthermore our role is to try to serve your needs. Once we have the work and are doing it
it defies logic that anybody would just stop midstream without cause and walk away on the last few hundred dollars. Besides you have received what you have paid. Why would we give up the balance , we are of course looking for that income also. Note “income”. Not loss, especially when the work is already being done.

If we take even one small or partial hit we are really screwed. The whole deal becomes fruitless.
Believe me we’ve been through it, & every one of my colleagues has also. Its our biggest problem.

and then theres scope creep..... i've had clients who havent paid , come back and want more files,copies info, additional work.
as said on another forum, even if you love doing engineering please stop doing freebies and for little or nothing , you are hurting everybody , including yourself and the clients. So many times i have seen them come to expect it (undercut bidding , dumping of prices, working lower than REAL cost, subsidizing manhours) and its unsustainable and the provider goes out of business. Who wins. nobody....... You win nothing by being the cheapest around town. In short order it bites you and hurts everybody.

 

[solid7]

I think this is a good topic, and worthy of developing into a nice long discussion.

So let me start with my top thoughts.

First, if you are in business, you should "be all that you can be", as the old saying goes. Your statement about not doing "freebies" is right on the money. If you have what it takes to run your own business, you should be charging TOP dollar for your services - not undercutting anyone. Charge what your services are worth. It's the only way that respectable customers will even have anything to do with you. (nobody cares if a loser walks away because he doesn't like your price) People who REALLY know what they are buying, know what it's worth. The burden is on YOU, the business owner, to intimately know what you/your services are worth, and charge the price that a premium firm charges. There is no "Wal-Mart" when it comes to engineering...

Secondly - if there's a lesson that I've learned in quoting work, and getting paid on it, it's that you NEVER, EVER apologize, and never feel sorry for anyone. If your prices are too high, that's tough business. A man's got to know what he needs to make, and if you are really in touch, you'll realize this soon.

Third - When "closing" on unpaide balances - and let's be fair, it can happen with even good customers, occassionally - my personal policy is to write off, but hold the unpaid balance as a "reinstatement fee", if you will. I recently wrote off a $150 loss. Small potatoes, to be sure. But the condition for that customer to return to me, is that he pay the balance of the "written off" debt. There is no forgiveness for debt.

Some of this does not address the concerns you mentioned directly, but the vast majority speaks directly to it.

This, and the "NET X" payment option is a killer in this business. There are creative solutions to this dilemma - the only problem is, when it comes to selling engineering, the person holding the purse strings has the "ace in the hole". If you don't meet their demands, there are other diversified companies, who can afford to lose a few, based on their overblown prices, and windfall revenues in other operating sectors.

If you are trying to change the culture, I wish you luck. How do you propose that the rest of us can assist you in this venture?




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[Rich2001]

I wrote some custom software for a collection agency, they took 9 months to pay!

Vita sine litteris mors est.

 

[RDK]

I usually work on the good faith system and have yet to have a problem getting paid.

Here in Manitoba we have a Builder’s Lien Act that protects suppliers of goods and services to builders and developers but expressly excludes engineers.

Part of it is that I am careful about who I supply significant amounts of service to before getting paid.

There is one type of client who almost all engineering firms and other suppliers around here who do business with routinely demand payment in advance. I have only once been in discussions with this group and when I raised the question of payment in advance it became an issue so I walked away. I did not really want that client but moist likely could have secured advance payment since it has now become the standard method of doing business in this market segment.

I have a friend who owned and operated a lumber store and went bankrupt because this group of clients stiffed him for about $100,000. Unfortunately there are legislative procedures in place that protect these clients and there is absolutely nothing that you can effectively do to get paid once they have your product.

However this is a business that for the most part operates on good faith and most engineering businessmen are engineers first and businessmen second.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[zcp]

My company's policy is money up front for new clients. Once a payment history has been established, your time of paying determines your policy. Pay slow and you will be putting up retainers for future work.

I think one of the key parts to proposals is determining the type of client and their ability to pay within a reasonable time.

ZCP

http://www.phoenix-engineer.com

 

[Ashereng]

I approach my client with the understanding that:
a) it is their job to delay payment as long as I let them (that is their job)
b) it is my job to get payment as soon as I can (that is my job)

Part of being in business is to do good engineering/technical work, on time, on schedule, etc.

Part of being in business is to get the highest return on investment (however you wish to define it) for your self/company.

I am sure most of my clients realise that non-payment is a legitimate concern. I am also sure that he/she isn't worrying about my problems (he/she is paid to worry about his/hers). Their job is to get the most favorable terms for their company. Mine, is to do the same for mine.

 

[stanier]

Any bad payers need to be exposed. Not to the point where you get sued but there are ways and means. The word gets around in the engineering world who are bad payers.

If you add 10% when you quote them for the risk they will soon find that they dont win tenders anymore and will ultimately go out of business. Beware the corporations who you quote to at time of tender as a subconsultant, they win the job but try and screw you for the 10% as they have the work. Someone will take the work for the price, there always is. But you dont want to work for such organisations anyhow. Be brave enough to walk away.

Make it your business to do a credit check before starting work. Ask for references from other engineering companies.

 

[nornrich]

It also helps to structure payment terms that don't withhold cash flow until the work is 100% complete. I find that progress payments are good for both parties in that they insure the work is being done in a timely fashion and that payment is being recieved before the next set of deliverables are in place. I typically work with the terms of 10% upon reciept of Purchase Order, 40% upon reciept of Approval Drawings, 40% upon completion of installation and 10% upon customer sign off.

It also becomes a little bit of a game. I know my customers have a standard in the accounting department of nothing being paid before 30 days after the invoice is recieved. I therefore back date invoices a couple of days before the milestones are met. This insures that any delay in getting through their accounting system and an actual check being mailed is minimized.

I have also worked the issue on the other end and negotiated discount terms with my vendors and taken the payment terms out to 45 days as a standard.

All in all I think time would be better spent in designing and implementing solutions for customers, but when you are in business for youself it becomes important to play the cash flow game.

Regards,

Rich.......

Richard Nornhold, PE

 

[stanier]

I find in a great deal of cases that there are questions raised by my customers. If they havent met their responsibilities and paid the invoice I let them know that the answer to their questions is held up waiting for the original payment. That tends to loosen the wheels a little.

No engineering is final and customers need to realise that there will be follow up matters. Blaming the accounts department is a nonsense because accounts departments function robotically. If the invoice is signed off accounts will pay.

 

[solid7]

No engineering is final and customers need to realise that there will be follow up matters. Blaming the accounts department is a nonsense because accounts departments function robotically. If the invoice is signed off accounts will pay

Many times, that is only true for large projects. And, on the flip side, some customers won't react kindly to that. When you attack the accounting department of some firms, you are, in essence, attacking the whole operation. Some firms have their purchasing dictated to them via accounting. What I'm trying to get at there, is that some companies are savvy to the games suppliers play.

When you make your living doing piece meal work, based on jobs under 100 hours each, that approach doesn't fly too well... (not in my experience)

When it comes to getting paid and working for multiple compaines, there really is no "one size fits all" approach. I think that's very important to keep in mind.




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[nornrich]

Stainer,

Accounts departments are far from robotic. Everyone plays the end of month/end of quarter/end of year games that effects what is being paid and when. Every company I have worked for and/or done work for sets down annual/quarterly/monthly budgets. When you have cash coming in through sales and cash going out through overhead and purchasing, in order to meet and/or exceed budgets, you will make decisions about who is paid first and who can wait till the following week. You also have the constraints of how far along you are in the food chain when it comes to timely payments. If you are subcontracting for a company sometimes your payment is dependent on when their customers pay them. And lastly accounting departments will play the cut the check vs. mail the check game. You might call and inquire about payment and the response is, we are cutting checks this date. The real question should be when are you mailing out the checks you are cutting? All these issues revolve around companies keeping their cash flow in a good position.

Regards,

Rich.....

Richard Nornhold, PE

 

[alcap]

I've been pretty silent,but time to speak out. Firstly this is a tremendous forum. Absolutely invaluable commentary that it has taken me years to learn the hard way. I worked for several comapnies with disgusting practices that made me sick but they made enormous profits, I thought I'd seen it all, but in private practice I've learnt much from hard knocks. I Wish the forum had been around then.
ON the other hand alot of what has been sai has been naive and rubbish.

eg back date the invoice a few days.How do you back date 13months. All the contractor billing was wiped of a big over-run project. Everybody was swept in the net of an accoutning overhaul. almost $50000 was struggled to get paid for 13months from a major Oilco. In other cases clients who havent paid or shortchanged came back demanding more, usually for free, one fo the largest Us oilco's even sent an email saying they wanted the structural design for free because they had no money.... it got worse. Another case 70,000 took 9months and then was never fully paid.

split billing 10-40-40-10. thats going to eat up a lot of your time chasing down payments of $100,$400,$400,$100.

As far as accounting departments, yes i have known many cases where they are forcibly instructed to stall at every turn, just like help lines , customer service and warranty failures from junk products made cheap and throw away (remember everybody who wants guarantees from the engineers work though), but in fact payment problems frequently root back to the guy you are doing the work just not signing them off. Once he got his needs filled, (the work done in a panic from his bad planning) at great effort, cost and inconsideration to you, he really doesnt care anymore. Often the work just sits and wasnt really needed so fast at all. Its just easy to ride a contractor and look like "YOU" (he) has got stuff done.

Many clients these days want to hire engineers for $150 to rubber stamp something or do a "fag packet calc" for a complex system.. that not only understands what they dont understand themeselves , solves all their headaches
but satisfies some jerk inspector somewhere that you have also jumped through thousands of pages of specs and checklists and signoff and procedures, and is colored pale blue because thats the color they wanted all along.

If you do as is stated, be the best you can be and everybody I beleive tries to do a good job, the other cr__ is just that.
Of course they dont want you part time, of course they want you available instantly and to deal with useless incoherent information and people and still turn a sours ear into a silk purse and guarantee it works fine despite the limitations.
THE QUESTION IS ARE THEY WILLING TO PAY FOR ALL THIS. Invariably there is a reality gap. I've had comapnies say my salary expectations are unrealistic. Actually they dont know the costs of themselves and they are in reality gap. I will not work for less than their NET salary, although unversally thats whats expected.
I make $10 more an hour than a draftsman assuming I am paid all my time... as the draftsmen are. My rate went up $1 i the last 16years. I have learnt if I budge over that the work completely dries up.
The real rate never happens, my effective rate is closer to $5-15 /hour when all the time is put in. I eek out a living by working 80-100 hrs per week.
I have learnt THE CLIENTS are unrealistic. They just dont get it. They are paid sitting in theior office to talk on the phone asking you how to solve their problem, but they dont think you should be compensated for that time. it is rampant.Same with travelling and meeting with them ,dont want to pay a courier want you to be theor free courier, recycle , rework, wrong information, backing up data that 6-60months later they have lost and want copies of again and many other "non recoverable losses"

What is wrong is that you are expected to drop everything provide instant service on and off like a tap, and the system rewards financially a lot of "ill practices".
Having done a lot of work in construction and seen much retail of goods in that process I have zero patience now with
a. the constant bitching that engineering is costly... it is not.
b. the constant bitching that engineers are no use, ...no good.
If you want to see mind boggling waste and incompetence hire a few contractors and see how they can really screw things up and create unfathomable waste. Look at the markup on many things and dream if we had those profit levels.(and the idiots who get wail paid)
(yes i know its not everywhere , its an imperfect system)

Solid7's comments were excellent and showed great depth of experience. But he wrote
""If you don't meet their demands, there are other diversified companies, who can afford to lose a few, based on their overblown prices, and windfall revenues in other operating sectors.""

I didnt understand this.. "whose demands", why would you try to meet the demands of someone who can go elsewhere at the drop of a hat.... sorry i dont get it.

I get really tired of really busting ass only to get screwed around, it never ends. when I think I have it figured another whammy hits hard.

") it is their job to delay payment as long as I let them (that is their job)"

While this is common practice it is bunkum. Unfortunately you learn quickly that these are the people that usually have work , win contracts because they are the low low bidder and are often featured as well managed companies. I find it despicable. It is just stealing. (from their sub-suppliers). I dont beleive low bid is the best way for the world to function , but it does. IT should be value based, and that would flush out the scum. But its infinitely harder to truly assess, lets face it, people choose the easiest path.

Ive vented enough for a while....time top take a valium.

 

[solid7]

Solid7's comments were excellent and showed great depth of experience. But he wrote
""If you don't meet their demands, there are other diversified companies, who can afford to lose a few, based on their overblown prices, and windfall revenues in other operating sectors.""

I didnt understand this.. "whose demands", why would you try to meet the demands of someone who can go elsewhere at the drop of a hat.... sorry i dont get it.

What I was trying to say, was simply this: if you don't agree to the customer's expectations, the unfortunate reality, is that they ultimately have you by the "nads", if you will. You can either do 1 of 2 things:

1) Show them you are serious - stand your ground, and don't back down and inch. (that is, risk losing business - an OK proposition)
2) Back down, do everything their way, and let them walk all over you. (and they play the game very well, because they ARE the hand that feeds us)

There are a multitude of companies out there who charge exorbitant prices, and absorb all of the rework, and dinking around that goes on. But, when I talked about them being "diversified", I just meant that some other operating division of the company will help balance out the losses, until such time that it becomes unprofitable (overall) to do so. At that time, new management comes in, several operating divisions are divested, and the vicious cycle starts all over with the new owners...




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[alcap]

solid7

bang on

 

[stanier]

Before I price a job I issue a spreadsheet questionnaire that asks the customer pointed questions about the project and the system to be analysed. From the response I am able to gauge the depth of information I can expect to receive and the understanding that the customer has for the problem. The level of information that is provided reflects the accuracy of the analysis. It also relflects the amount of time I will spend doing the job.

I have worked for myself for 35 years. I have the advantage of being able to live frugally, below my income, if needed. I am not a slave to material possessions or competing with my neighbours. Thats a life style decision and I am not saying all should adopt it. I just find it easier to live that way.

Thus when a customer doesnt look to me to be honest and behave with integrity, I refuse the work. I cannot understand working for 13 months without getting paid. I would just stop and let the world know. As for doing work for free, I occassionally do relief work in the third world pro bono but not for a major Oilco.

A friend of mine actually filed a petition to bankrupt a major corporation because a relatively small bill that was unpaid. The initial shot in court didnt cost much but it focused their management.

As for accounts departments behaving robotically this is the case. It is management that instructs them to adopt a policy of not paying bills. A company is in breach of contract as soon as they do not meet their obligations. Engineers need to be more contractually savvy and have the guts to walk away.

If you deal with scum you become scum. Dont compromise yourself. Let us other poor sods know who the baddies are so we dont have to deal with them. If the project manager is a professional engineer report him to the Institution's ethics committee. Have the guts to stand up for yourself and not get walked over.

Its a lot easier if mateial possessions arent your goal. If they are, get out of engineering and into some other activity that yields more money and stop whinging.

 

[alcap]

Yes i have spreadsheet also. I've been rejected out of hand for just issuing such inquiries... fine , dont need that sort of client, trouble is, the bad practices are being copied everywhere in the effort to be "competitive".
.....Walmart engineering.

Of course we didnt keep working for 13months.
Myself, designer and draftsman worked our butts off for 3months on a rush job. We bill every 2 or 4weeks depending on the riskiness of the client. After 27days we invoiced, kept working and invoices fell to 60 90 100ays and it got nasty when we pulled the plug. No money=stop delivery. Usual routine, wont pay until product finished/delivered.
Catch22. As earlier stated and the point of the posting. ""Net X is a killer."" Play hardball and they play the "back charging game" or we havent got this or that game. Happens more and more.

Who are the bad actors, well, who isnt. I refer specifically to three of the worlds largest oil companies and the specifics were two of the largest national oil-open pit companies, and my colleagues tell me the same horror stories. Then fabricators are the worst. Why do people work for them, because they have to.
Forget the associations- useless.

The guy who sued, good on him, but I bet he was blacklisted. Word like that travels really fast.

materialism , I dont think so ..I have a 1986 and a 1980 vehicle and average accom. I live off my wifes benefit pkg.. thank god for some professions that still have morals. I dont need to say any more, but could.
The trend in engineering is to short term contracts/contractors because they are vulnerable and can be squeezed. For employees there are payment and labour laws, contracting bypasses all that. On a $multimillion
job the eng has some witholding clout, not easy to pull the plug and switch midstream, but i've seen it happen there too.
In 3,4,5 and even 6 figure jobs, they can just walk away and can and do say "sue me", and "watch me bury you in the legal system".

Offshoring and globalism to places with wholly different social regines and medieval mentalities only exacerbate the problem.

Give me a break you are missing the point.For the guys wanting to part time or go on their own, this is the reality.

 

[stanier]

alcap,

You appear to be getting the worst of it. If you want to stay in engineering I suggest you seriously consider emigrating to a country with more fair laws of doing business.

In the UK,NZ, Malaysia, Singapore, Indonesia, Japan, and Australia I have never come across such gross unfairness. It doesnt sound as if you live in anything but the wild west! Perhaps mount a class action against a company.

Target the undercutters. Arent you guys in the USA all meant to be registered PEs? Isnt there a governing body that protects your rights?

 

[RDK]

Most engineering business managers tend to be engineers first and managers second.

Thus we rush in to do the fun stuff design and build something without taking care of the business end first and making sure that we have good contracts in place and sound business arrangements in place.

After all we are an ethical profession and we therefore tend to believe that everyone else is also ethical.

We see it in other business areas. We fall in love with the newest, sexiest and fastest technological toys with no thought to if the stuff will pay for itself or not. After all who needs income when we have all the latest toys to play with?

How often have you seen a company with the newest technology and they only use a fraction of its capabilities?

I once saw a local utility company show up with a full GPS set-up (a few years ago when this was a lot more expensive than it is today) simply to lay out the lot corners for a new sub division to install the power pedestals. This sort of work was all that this crew did and the only task that the equipment was used for.

Trouble was the legal surveyors had already established the lot corner pins and I had already marked the stakes at the lot corners with final design grade. I asked why all the fancy technology and was told that they needed this stuff because sometimes the legal surveys were wrong, they needed millimeter accuracy and they had to confirm the grades to avoid liability.

Wrong on all three counts. By definition the legal survey is correct, the GPS accuracy was much more than needed for the job (I used to do the same job with a chain and a transit when I was a summer student for the same utility company) and they would have less liability by accepting my grade stakes than by re-establishing their own.

All they wanted was the newest toy to play with and had no concern for the costs of the toy.

Typical engineers!

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com