An open letter to Solar Distributors & Manufacturers: Extend Our NET30 Terms

An open letter to Solar Distributors & Manufacturers: Extend Our NET30 Terms

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Dear Solar Distributors and Manufacturers,

You are our lifeblood, and the machine that keeps our businesses running. Without you, we wouldn’t have the materials to provide our solar customers with energy independence, utility savings, added home value, and peace of mind. You share our values and our mission, and for that we are eternally grateful.

But here’s the thing:

Most of the time, we cannot easily get from receiving your materials to getting fully paid in 30 days.

Why?

Let me count the ways:

  1. Solar installers generally order biweekly, monthly or quarterly to stock their warehouses. Of course, some may drop ship to the house but they tend to be the exception since it can cause logistical challenges. If you’re ordering on a monthly basis, for instance, that means that once you go out to install, your bill may already be due. Since most solar installers are not paid on either their cash schedules or loan disbursements until the project is completed, this means we are left holding the bag.

  2. Inspections take time and are not getting any easier. Once you install the job, it doesn’t mean you’re getting paid. Scheduling the inspection can take time if the county has a backlog, if the inspector doesn’t show up, or if wires are crossed. Failed inspections are also becoming more common as inspectors become more familiar with solar, or hold installers to higher (and frankly sometimes unreasonable) standards. We recently failed an inspection because we had two groundings but not a third cold water ground, and yet another because a sticker was not perfectly straight. Delays due to inspection make it even harder to ensure that the installer has the cash in hand to pay for materials on NET30 terms.

  3. More Batteries, More Problems. There may be more battery options than ever, but it doesn’t mean they are getting any easier to install. Some battery options out there take as long as an entire day to commission. Others have significant manufacturing issues and have put bad equipment into the marketplace without properly notifying installers, only to force them to find out the hard way. We have had several battery systems require months of troubleshooting with little or no help from the manufacturers, while we paid in full for these expensive battery systems upfront months ago.

  4. Loan Disbursement Schedules are backloaded. When you don’t get paid on your financed projects until PTO, with another 20 days built in for actual deposit - that means you are guaranteed to be left holding the bag. Fortunately, there are more lenders realizing this and offering combinations of Direct Pay for materials, or front loaded disbursements for creditworthy installers. But if your loan volume doubled overnight like ours did this year, and you’re not paid until the project is complete (plus 20 days), that means you are guaranteed to have a P&L that reflects significant losses from what you otherwise might have realized, and that you’re drawing from lines of credit to make payroll in the meantime.

  5. Many quality solar installers build up their backlogs in order to keep their resources in-house. Of course, there are fantastic installers who go from contract to install in 30-60 days, and god bless them for it! But if you’re like Ipsun Solar, you build up a 4-6 month backlog so that you don’t have to rely on subcontractors to install your jobs, and so that you can keep your crews entirely in-house, which is a big advantage from a cultural (and quality control) perspective.

    If you are maintaining too short of a backlog, it means that any reduction in sales could require you to layoff or furlough installers, which is not ideal. Often when speaking with distributors, they are pining for more mature installers who have systems and processes in place that can help them forecast. Well, that goes hand-in-hand with an installer that maintains a healthy backlog. If you have a healthy backlog, it probably means that you’re holding higher amounts of inventory as well - especially in the last few years. This means it is even harder to pay in NET30 terms.

  6. Supply chains require holding more inventory for longer periods. No surprises here, right? Well if you’re holding more inventory for longer periods of time, that means you are paying on NET30 terms before you’ve even scheduled the job. Of course, mature companies may have lines of credit to help them with this, but eventually the above factors will catch up with you.

So what can you do to help us?

  1. Allow for credit cards to pay balances, ideally without the fees. Some distributors allow for credit cards (thank you!), others do but pass on the fees, and still others do not provide the option at all.

    From an installer perspective, we always will lean toward distributors who allow us to pay via credit card without fees.

    This is because we know that we will not get paid 99% of the time in 30 days from our customers, so we really have no choice.

    Fortunately, we discovered a service called “Plastiq” which allows you to pay any invoice on a credit card even if the distributor doesn’t take credit card payments. Of course, it comes with a fee, but at least you’ve got the option.

  2. Provide Direct Pay for materials, and pair with Credit Unions. The fintechs have been great about providing Direct Pay in partnership with distributors, but they also charge the highest dealer fees in the country.

    For this reason, Credit Unions have been increasing in popularity, but they tend not to have the best disbursement schedules or have these types of partnerships. So you either pay enormous dealer fees and have access to faster disbursements and direct pay, or you get better rates and fees, but do not have access to these programs.

    If distributors would provide “financier agnostic” Direct Pay, or simply connect with more Credit Unions, it would help alleviate the burden for installers.

  3. Extend Our NET30 Terms, and make us pay for the privilege! We know that it costs you money to extend credit terms, and you should make us pay for it. Either tell this story to your financing partners so they understand it helps nobody to put solar installers at risk, so they can provide more flexible terms, or simply increase the cost of materials to reflect NET60 and NET90 terms for installers.

    Of course, it would be preferable to provide transparent options for the cost of providing longer payment terms, so that solar installers could make these decisions with eyes wide open.

    Did you know that in Europe NET 60 or NET90 terms are common?

    For whatever reason, the short-term American mentality seems to have extended itself from the rest of the economy into a nascent solar industry that simply cannot easily cope with such inflexible payment terms. Why put small solar businesses at risk of insolvency knowing that it is going to hurt you even more than us?

Why does any of this matter?

Putting unnecessary strain on solar installers puts the industry at jeopardy, which puts distributors and manufacturers at jeopardy.

Providing more flexible terms will make your businesses stronger, because it will make our businesses stronger.

If you’re offering more flexibility, you are naturally going to get more business. Anyone that offers terms beyond 30 days is going to get attention in this industry, because it’s so vanishingly rare. Even if your prices are a bit higher, installers will flock to you for the more attractive terms. Of course, it’s always better to have competitive prices and simply offer transparent rates for extending terms.

Getting lines of credit in the solar industry may be harder than you think.

Of course, there are probably folks in solar distribution reading this asking “Why don’t you simply get a bank line of credit?”

Well, we did! But you know what: it took us 6 years to get there.

The banking industry is still very new to solar, and it’s perceived as risky and uncertain. As they start to see healthy financials from an evolving industry, that will change. But if you are just getting a solar business off the ground, or you are just a year or two in - odds are high that you are not getting LOCs too easily.

In summary, solar is different from many other construction industries. The lead times to get from start to finish can be much longer, especially for mature companies with long backlogs and sophisticated warehousing, inventory, and logistical operations. We are more than willing to pay for longer payment terms if you provide the options, and the result will be a stronger solar industry for all.

Who knew fighting climate change could be so painless.

From "aha" to "oh crap", we’re sharing everything on our journey to install 1,000 kW in residential solar per month.

We’re learning a lot and so will you.

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written byJoe MarhamatiCOOJoe is the Co-Founder and COO of Ipsun Solar – a top residential solar installer in Washington DC with 60+ employees and $10M+ in annual revenue.Read more »
Joe Marhamati

1 thoughtful comments:

Leave a great comment

Mark Dickson

Mark Dickson·a year ago

As the owner of a longtime and profitable EPC in Reno, NV, we can echo the same sentiment as stated in this article. Add to this the uncertainty and delays COVID has played in the market and all the lovely snow we currently have out west, we are seeing longer and longer back logs and delays in payments. Yes it's all "money in the bank" but unfortunately it is puting a cashflow crunch on us at the moment. We depend on distributors as much as we depend on them. Let's works together on a solution we can all benefit from!

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