Business Negotiation January 29, 2014

The Devil is in the Details

Moe has been in business for 40 years. Usually a calm man, on this day he was angry. He told me about a ploy that was driving him crazy. He was having trouble getting reimbursed for work his company had done because the fine print was doing him in.

Moe manufactures the custom plastic signs seen on large buildings. In the past, he made several small signs worth $3000 each for Triton Construction and was promptly paid. When an order for a large and complex building display came in, Moe negotiated a $70,000 price. He was persuaded to settle for payment in thirty days after delivery instead of advance payment. The sign was delivered and the invoice was mailed.

Forty-five days later, payment had not been received. Moe’s bookkeeper was told the invoice never arrived. Another was mailed. Ten days later a follow-up call was made. Once more she was told it hadn’t arrived and it was suggested that perhaps it had been mailed to the wrong place. Moe’s bookkeeper looked at the billing instructions on the purchase order. To her surprise, the fine print did indeed specify a post office box in another city where invoices were to be sent for payment. She promptly mailed two copies.

Sixty days had already elapsed by this time. Moe began to worry. He had laid out over $55,000 for labor and materials, and now he was sore-pressed for working capital. He needed the $70,000.

Two weeks later, the $70,000 check has still not arrived. Moe called the Accounts Payable Chief of Triton and asked why. He was told that Triton could not process payment until a “material certification” was received.

That’s when Moe discovered that he was obligated to provide three notarized copies of a “Certificate of Proper Materials” rendered on a specific form to be supplied by Triton. It took another week to receive the form and an additional week to fill it out because Moe went on vacation. Forty days later the $70,000 check finally came.

Moe later learned that it was all a well-thought-out plan designed to take advantage of suppliers who received orders in excess of $10,000. Triton knew that sellers did not read the administrative details of a contract carefully and rarely did what was specified. This gave the buyer a “legitimate” excuse for delaying payment. The Triton policy of paying small purchase orders promptly and large ones slowly provided them with a considerable quantity of interest free capital.

The ploy is always the same. Hidden in an obscure attachment, specification, or boilerplate document lies an administrative or technical nightmare. They are designed to be overlooked. Only after an agreement is signed and the contract moves toward completion do these costly requirements rise out of the shadows. The devil is in the details.