The Best Chief Technology Officer

Slow Corporate Pays – A Small Businessman’s Nightmare

Slow Corporate Pays – A Small Businessman’s Nightmare

Before retirement, I ran a franchising company, and one thing I’ve always warned our franchisees, especially the young men and women who were new to business was to “be careful with your collections, don’t let large customers string you out on receivables.” If you get behind collecting on all the money that is owed to you from all the bills you sent out and if those customers get too far behind, there’s a chance you may never collect your money, but in the interim it’s worse, because you don’t have that cash flow, the money you need to pay your employees, pay the rent, and make all the payments.

Without a decent cash flow, there will not be any profit for you to take home in your business. It’s unfortunate that corporate America uses small businesses as their piggy banks. Sometimes I think that they have too much power, and they can often really shaft the little small business person. Okay so let’s talk about this shall we?

There was an interesting article in the Wall Street Journal on April 19, 2013 titled “Firms Pinch Payments to Suppliers,” by Serena Ng. The article told of how big corporations are stringing out the little businesses and suppliers to the tune of on average now 75-days. Further, if the small business wants to get paid sooner, they can use vouchers at the bank, a lot like factoring or borrowing on receivables, or in some cases the corporation will pay them quicker for a steep discount.

Back in the 80s and 90s it was often considered wise to demand net payment in 30-days, with a 2% discount if they paid in 10-days, eventually those all got lengthened, 2/30, Net/60 for instance. Today, the fees and loans are akin to pay-day type loan-shark loans. It’s as if the small business has no choice, and yet, I can’t think of a single corporation dealing with the public or consumer that allows their invoices to go past 30-days. Your cell phone company, cable company, power company, water company, etc. are in the middle of a shut-off phase I imagine if you let things go that long. Where is fair I ask?

But in that article Proctor and Gamble for instance notes that it frees up some $2 billion in cash to switch to the net 75-day strategy. Well, as shareholders we like the sound of that, but as a small business supplier, I’d be a little concerned about paying the rent, and employees, especially in this day and age of ObamaCare and rising taxes. Indeed I hope you will please consider all this and think on it.