A couple weeks ago my company’s two largest customers informed us that they were unilaterally changing from paying us on a net 30 day basis to a net 60 day basis. Our company’s most significant costs are labor, which means that the bulk of our expenses must be paid in a matter of days as payroll. The difference between when our customers pay us and when we must pay our employees just went from about 23 days to 53 days. For those 53 days our two largest customers essentially get a no-interest loan, and we get socked with whatever costs we incur for having to borrow the money to make payroll.
That might not seem like much, but those two customers represent more than a million dollars in revenue a year. The 53-day float amounts to about $10,000 in interest payments on the money we will borrow.
Which is one less perk. Or stifled Christmas bonuses. Or 6 fewer laptop computer replacements. It means a lot to a small company, but we have no leverage over the big gorillas whose CFOs will prop up their quarterly returns with a one-shot and probably get hefty bonuses for doing so, at my expense.
In my business, this is shit.