If when I purchase something I pay for it immediately why do companies/government/orgs after approving a transaction and/or receiving the work take 1-2months to pay for it?
EDIT: I am a new agency owner, so trying to figure out cash flow
EDIT 2: thank you guys so much for the detailed answers! Really helped me further narrow down the kinds of customers I do and don’t want to work with moving forward.
In: 2
A couple reasons.
First, is typically those dollar amounts are significant: it’s not paying 100 dollars to the store or even 1,000 dollars to a painter.
It’s paying hundreds of thousands or millions of dollars. Companies/Governments/etc don’t just keep that money sitting around for the whole project ready for it to be done. They would rather be able to use that money for other things, and then once the project is finally actually done, since projects often get delayed, have a month or two to then bring the money together to pay for it.
Another thing is it gives them a chance to check your work and dispute you. If you did a job and they paid you right away, and then two months later they finally get around to looking at it and find something wrong, it’d be tough for them to get their money back. By legally withholding payment by the term of the contract, it gives them time to look over and check you. And then if they find something they typically then get to invoke another part of the contract about getting whatever the problem is fixed.
Essentially, taking that two months does nothing but help the company/government, and the workers/contractors will accept those terms when it comes to jobs that are hundreds of thousands to millions of dollars.
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