Friday, July 11, 2014

Cash Flow in Small Businesses

I was quite surprised this morning to see the local paper reporting that Obama wants companies to pay their suppliers faster, mostly because this doesn't strike me as anything that a president should be getting involved in.

Having worked for small companies for more than a decade, I highly appreciate the problems they have in getting paid and how that impacts their cash flow. In my last job, our standard contract was 30-days net, but we had many large clients that would routinely change that to 45-days or 60-days and there was little we could do about it. They had the power and we didn't, so they got their way.

It's pretty much the same way with us an individuals. Imagine if your employer were to start doing this with your paycheck, delaying payment of it by a couple of weeks or a month. There would be more than a few households that would be in pretty desperate straits, but what could you do about it? (And conversely, how well it would work if you decide to delay payment on your mortgage, taxes or credit card by a few weeks?) Small businesses are no different. It's difficult to budget and operate when you can't predict cash flow. And while it can be done, it's a time drain. That time really could and should be spent elsewhere, such is in efforts to increase sales, develop new and better products... - the activities for which people started up the business in the first place.

So while it is nice that these 26 companies decided make quicker payments, they only represent 5% of the companies in the Fortune 500, and the list of companies delaying payments could be extended to a goodly portion of the Fortune 10,000 (and more). It's a nice gesture, but it really isn't going to help the economy in any meaningful way.

Previous Years
July 11, 2012 - "What is Journal Access Like in an Industrial Setting?"

1 comment:

Chemjobber said...

Call me crazy, but I have a really hard time imagining that Apple and IBM do that much business with small companies in the US.

Now if you could get Costco to move off of net-90, that'd probably be a huge win for "small" businesses in the US.

Would be interesting to know who the biggest net 45+ companies/offenders are.