By Terra Terwilliger
The opinions expressed are the author's own.
Over two years after the start of the Great Credit Crisis, banks are still not lending money. But big businesses know exactly where to go for a quick, interest-free loan … the little guy. Even as corporate profits recover, big companies continue to squeeze their small vendors, stretching out payment terms and writing late checks. Unfortunately, this blatant exploitation is damaging the small business economic engine that drives half of US GDP.
A friend who owns a small consulting company recently received notice from a Fortune 500 client that henceforth their payment terms would be extended from 90 to 120 days. No discussion, no recourse, just a fancy legalese version of “we’re going to start paying you later because it’s better for us, so get used to it.”
That’s as if your employer casually one day sent you a letter saying that they were going to start paying you 30 days late. Unfortunately, you wouldn’t be able to tell your landlord, the gas company and the supermarket the same thing. Your bills still have to be paid on time.
My friend is not alone. Last August, The Wall Street Journal published an article titled “Big Firms are Quick to Collect, Slow to Pay,” which revealed how companies with more than $5b in annual sales were systematically slowing payments to suppliers, while speeding up their own collections. The analysis showed that companies with revenues over $5 billion took an average of 55.8 days to pay suppliers, compared to 53.2 days a year earlier … and compared to the 40.1 days in which businesses with revenues under $500 million pay up.
The situation is not getting better. “We just updated our payables analysis for 2010,” says a spokesperson for REL Consultancy, the company that did the original WSJ research. “We see the same trends in 2010. Large companies continue to pay slowly, and they are still using their muscle to make their suppliers accept longer payment terms.”
