Overcome 'Penny Wise, Pound Foolish' Mentality

"Penny wise, pound foolish" is a very old expression that suggests someone is thrifty with small things, but spends extravagantly on big-ticket items, which, on the surface, appears to be incompatible approaches for managing finances. Yet, this is a philosophy commonly found in a lot of Fortune 500 companies.

For example, a manager may have just paid a hundred thousand dollars for his department to take a training program, yet sharply criticizes one of his students who put a cup of coffee on his expense account.

Let me give you another example, perhaps something you've run across yourself. Some time ago we had a large corporate account that had no problem paying a sizable sum of money for our product line. As part of the contract, each corporate division paid a modest fee for an annual maintenance contract. Dutifully, we would issue invoices prior to the anniversary date with terms of "Net Due in 30 days" (meaning the anniversary date). Interestingly, we noticed all of the invoices were being paid past their due date, 15 days later to be exact. In other words, they took the "Net 30" and tried to turn it into "Net 45." We were told by an insider that this was a common tactic used by the company to make interest off the money being held for a few days longer.

When we objected to the bills not being paid on time, the company tried to throw their weight around and asked if we would like to lose their sizable business. A lot of companies would back down in this situation, but we tried a different tactic. Instead of issuing the bills 30 days prior to the anniversary date, we sent them 60 days prior to the date, yet sill marked "Net 30 Days." As expected, the company paid the bills within 45 days, thinking they had once again outfoxed us. In reality, we received the money 15 days earlier than normal, and nobody was the wiser.

All of this could have been avoided had they simply paid their bills on time as they were supposed to, but being a huge conglomerate they thought they could bully their way past the little guy. They never figured the little guy would be able to interpret their penny-wise, pound-foolish tactic and find a suitable solution.

With a mindset like penny wise, pound foolish, it's no small wonder we're stuck in a recession.

Keep the Faith!

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Copyright © 2011 by Tim Bryce. All rights reserved.