The Economics of Transaction Costs: Who Pays the Friction? How Big Buyers Push Costs Onto You

Friction is a cost that can be moved

Here's the insight that changes how you read every deal: transaction costs don't disappear - they get allocated. Every negotiation quietly decides who absorbs the friction of doing business, and the party with more power usually pushes it onto the party with less.

How big buyers push costs down the chain

When you work for a large B2B client, you often inherit their friction:

• Vendor portals and systems you have to learn and log into - on your time, not theirs.
• Their paperwork, their process - supplier onboarding, compliance packs, insurance certificates, annual re-verification.
• Payment terms set for their cash flow, not yours - net-60 or net-90, so you're effectively financing them.
• Procurement as a gatekeeper - more meetings, more approvals, more unpaid hours before a single invoice.

None of this is malicious. It's rational. A big buyer has the leverage to say "this is how we work," and the cost of complying lands on the supplier. On you.

Why Professionals absorb it so easily

Two reasons. First, the work is often worth having, so you swallow the friction to win it. Second - and this is the real trap - because you've never costed the friction, you don't realise how much you've conceded. A prestigious client on net-90 terms with a heavy portal can be less profitable than a small client who pays on time and keeps things simple. This is where managing a professional services firm becomes a numbers discipline, not a gut one.

Read the friction into the deal

You don't have to refuse this work - often you shouldn't. But you should price it in:

• Treat onerous terms as a cost, and reflect it in the fee. Net-90 has a financing cost; portal overhead has a time cost. Both are real.
• Use your professional services contract deliberately - scope, milestones and payment terms are your main levers for pushing friction back the other way.
• Know your number (from the previous post) so you can tell a genuinely profitable big client from a prestigious loss-maker.

The takeaway

Transaction costs flow toward whoever has less power to refuse them. When you work up the chain, that's often you. Seeing this clearly is the first step to stopping the leak - and it sets up the most useful question in the series: if costs can be pushed onto you, can you push them the other way?

Check out our guide to Profitability in Professional Services here.