What’s ailing small business in this recovery?
Why aren’t they hiring more people?
One major reason…big business is using small business as their banks!
The big guys are showing solid returns yet purposely taking longer and longer to pay the invoices owed to small business owners.
Customarily an invoice would be paid in 30 days but it is becoming common to see large corporations waiting 60, 90, even 120 days before paying on the goods and services already delivered.
This is making many companies strapped for cash at a time when banks have severely limited their lending to small business, as revealed by Jeffrey Leonard from the Washington Monthly.
Here’s a clip of the video shared from The Colbert Report (Copyright © 1995-2011 Comedy Partners) that is sure to provoke many reactions.
Warning, the exchange does get a bit heated and at one point Colbert says “I didn’t realize it was possible to fire up people this strongly about bookkeeping!”
Did you catch that part about the Cisco Systems new policy? In searching for more information I found this interesting quote from Mr. Jeffrey Leonard:
“Take Cisco Systems, Inc., one of the world’s largest technology companies. Cisco has seen its net earnings increase by 26.6 percent, from $6.1 to $7.8 billion in the last year. Yet effective March 31, 2010, Cisco announced to its small business suppliers that as a rule Cisco would wait sixty days after receipt of an invoice—or net 60, in business jargon—before cutting a check. The reason Cisco gave for this new policy was not that it was hard up: the company has nearly $39 billion of cash on its balance sheet, and in the third quarter of 2010 alone it spent $2.7 billion to repurchase its own shares. Rather, the corporation explained that it had been “benchmarking against our technology peers” and found a precedent for “new payment terms.” In other words: Everyone is doing it, so we are too. (Source: http://www.washingtonmonthly.com/features/2011/1101.leonard.html)
And Cisco is not alone. In the open letter Leonard goes on to mention the net 60 policy implemented at Boston University and a whopping net 120 by AB InBev, the 2008 purchaser of Anheuser-Busch.
Certainly there are other problems ailing small businesses but waiting to get paid on invoices is not helping! While not discussed in the interview, one possible solution evident to our readers is…
Factoring Accounts Receivable
We know converting accounts receivables to cash is the whole basis of invoice financing! The Factoring Company will pay the business a discounted amount for the purchase of their receivables. The business is then free to use the advance to pay bills, meet payroll, purchase materials for the next order, or fund other business needs.
Until there is a way to get big business to pay small businesses on time there will continue to be an increasing need for factoring, factoring companies, and factoring brokers.
Have your own thoughts on the interview or the plight of small businesses? Be sure to leave us a comment!