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A recent article in the Wall Street Journal by Angus Loten, titled, “For Small Firms, the Check is Not in the Mail” really struck home with us here at Cazbah.  Angus’ article poignantly describes one of the potential downsides of being a supplier or vendor to big companies; the fact that you may not get paid or that you certainly won’t get paid on time.

“About 14% of nearly 5,000 entrepreneurs cited late payments — or customers that didn’t pay at all — as their biggest challenge in 2010, up from just 2% in 2008, according to a study released Wednesday by the Ewing Marion Kauffman Foundation of Kansas City, Mo.”

We hear the horror stories from our small business customers all the time about how they have been abused by their largest customers and their late payment practices. All small businesses have felt the burden of financial instability at the expense of their larger corporate customers at some point. This is a serious issue for all small businesses who depend on their receivables for cash-flow, which is most of them.

According to the National Federation of Independent Business, “in 2011, small businesses waited up to 46 days on average to get paid, six days longer than in 2010 and 10 days longer than 2006.”  This resonates with many of our customers, who are often battling to get paid. Bear in mind that these numbers represent the average, which means that there are late payment situations reflected in these numbers that are much worse.

Some big businesses have perfected, and frankly institutionalized, the process of holding out on and late paying their small business vendors.

I recall being invited to attend a Vendor Summit, which was an annual affair put on by a local big business here in Rochester (we’ll refer to them as ‘Company X’), some years ago. I felt privileged to have been invited to such a prestigious occasion. That is until I got there and realized what it was.

The event kicked off with some fanfare about the bright future and new products that were being developed and the goals of the company and how we all had to pull together as a team, yada, yada. Then, the current CEO of the company got up and basically told a packed auditorium that they (the vendors) were going to lower their prices to ‘Company X’ by 10%, across the board, and that ‘Company X’ was going to extend their payment terms on all invoices to the vendors.

I was in shock. I had never heard of such a thing. I was sitting next to the president of a small manufacturing company that had been serving ‘Company X’ for years. His comment to me was that this was typical behavior. He clearly didn’t like it but, he wasn’t surprised in the least. He said, ‘what are we going to do? If we want the business, you have to put up with this unfair and unethical behavior.'”

It’s important to note that “Company X’ is a profitable, multi-billion dollar annual revenue company. It hardly seems like the type of behavior befitting such a company, to walk all over their small business suppliers. But, as evidenced here and elsewhere, it happens all the time and is an accepted business practice.

It’s hard enough for any small business to succeed, let alone do so without getting paid! One would assume big businesses would be the most reliable, accepting a corporate responsibility to pay their bills on time. Clearly, this is not the case: “on average, big businesses – those with 1,000 or more employees – paid their bills more than a week past the due date on invoices.” This is the start of a vicious cycle, with small businesses unable to pay their bills on time, and so it goes…

‪We’d like to hear from you about your challenges as a small business.

‪Have you been stung by the big company late payment bug? Are your customers “holding-out” on you, and if so, for how long?

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