Small business owners are taking longer to pay their bills.
Five major industries are seeing their average accounts-payable days rising, according to a new study from the Raleigh-based small-business research firm Sageworks. Taking an average 40 days to make a payment, manufacturing firms are delaying the most, while real-estate businesses, which were at 10 days in 2009, are now at nearly 20 days. For retailers, it took 24 days to pay last year, but now it's more like 34 days.
Although the latest survey of small-business economic trends from the National Federation of Independent Business showed growing pessimism among entrepreneurs, the explanation that hard times are causing companies' accounts payables to creep might not be entirely accurate.
So what's behind the uptick in accounts-payable days? And is this trend good news or bad? Here are a few theories on what could be driving longer payment cycles:
Client payment slowdown. Major corporations that have small businesses as subcontractors are paying slower. Giant companies are sitting on a big wad of cash right now, and they're not letting go of it easily. If clients take longer to pay, small businesses, which often function check to check, tend to pay their vendors slowly, too.
Poor cash management. Many entrepreneurs are loath to call deadbeats or revoke credit when customers don't pay their bills on time. Not only do few small businesses have policies for dealing with problematic payers, small-business owners will often make credit decisions on the fly rather than research customers' credit histories to judge if they're a good risk. They may also be holding too much inventory, which depresses available capital.
Downturn chaos. With the recovery not really materializing, many business owners are scrambling just to keep the doors open. One side effect of that can often be disorganized billing procedures. When businesses don't bill promptly, they don't get paid promptly either, and then they're jammed up when their own bills are due.
Better credit terms. Of course, it may also be that some entrepreneurs have been able to negotiate longer payment terms with their vendors because business is picking up and they're ordering more volume. Not every company is still suffering. Perhaps some businesses are paying later simply because they don't have to pay sooner anymore.
Are you paying your business's bills more slowly now? Leave a comment and tell us if your cash cycle has gotten longer or shorter in the past year.
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Comments:
Because small companies start with little amount of cash. So the money that they will earn will be they're profit again. Until they reach the money they want. Thanks for this nice blog.
I work for a pretty good commercial debt collection agency at Neal & Associates, Lp 866-270-0982. We find companies are paying but pretty slow! A lot of small to medium sized businesses just lose hope sometimes and often hope the bill will just disappear. Sometimes our clients are afraid to hire collection agencies, but my boss does pretty good in getting the client paid and not generating complaints. If you're looking for a great agency with very low rates look us up. We also provide business credit reports for $10 rather than the standard $50 or so. - Jenn
I suppose not all small companies, but rather small and mismanaged companies..
@f8705ac88495a89f847c1f6a58d1e062:disqus is on the right track but we can help businesses with Accounts Receivable Management that might even help to avoid the need for more lending. Check out this article: http://www.invoicefactoringus.com/create-cash-flow-by-managing-your-invoices-right/
We have noticed our clients are taking longer to pay. When they pay slow we in turn take longer to pay our bills. Hope this turns around soon it is really getting stressful.
RIGHT INFORMATION GIVEN THIS BLOG
p { margin-bottom: 0.08in; } If your small business is paying slower, or getting paid slower, consider factoring receivables to speed up cash flow cycles.
We are seeing businesses pay later as well. Some of our customers call in and immediately want to pay their overdue bills which is great. But, we don't have a way of taking check payments online yet. And many of our customers prefer to pay via check. I am working on setting up echeck.net with our gateway provider now. Want to put that on our website for customers to pay their bills. Paypal is just too expensive and many people really don't use it for paying bills.
I recently got organized on Freshbooks, and now I know the minute a bill is late. I'm usually good about invoicing immediately, but recently discovered $2K of invoices that didn't go out 3 weeks later! Still working on a good system for making sure I SEND the bills right away.
I can relate to this article. My clients are paying me slowly, which means I pay more slowly. Also, I'm guilty of the "chaos" problem of not sending out my own invoices quickly enough. I have to remember to take time weekly to check in with late payers and do my own invoicing.