Net 60 spells big trouble for small business

Last week I was watching “The Colbert Report,” where I usually expect to get a few laughs about the state of politics in this country. But in this particular episode, I learned of a trend among large corporations that is severely impacting the ability of small businesses to stay afloat. Stephen’s guest was Jeffrey Leonard of the Washington Monthly. They talked about an article Leonard had written entitled “Do Small Business a Simple Favor,” in which he reported on how more and more big businesses are delaying payments for B2B goods and services to small businesses. Instead of net 30, meaning they pay their invoices in 30 days, they’ve switched to net 60 or even longer in some cases.

As Leonard points out, they are not doing this because they can’t afford to pay their bills on time. In fact, many of the companies that are slowing down their accounts payable payments are making big profits and have huge amounts of cash on hand. Instead, they are doing it simply because they can. The upshot is that instead of leading new job creation coming out of the recession, as has occurred in past recessions, small businesses are unable to hire new people because their cash flows are taking a serious hit.

Here’s just one example of the thinking among the Fortune 500, according to Leonard’s reporting:

“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.”

I strongly encourage you to read this article and to also watch the video of Leonard’s appearance with Colbert, which is part of the Web page where the article appears. Unless the folks in Washington call big business out on this, all the talk in the White House and on Capitol Hill of support for small business may be for naught.

And in the meantime, I want to thank all of my clients for sticking with 30 net. Bless you!

3 comments

  1. Pat says:

    This is happening to me… I am only a very little fish in a big pond… but the money is not flowing fast enough…. and I have sharks on my tail… it's becoming a real problem. Got to shake that Washington tree to rattle their chains… Ghosts of Marley and Dickens I think….

  2. Jeanne Yocum says:

    What types of companies are moving to net 60 on you, Pat? Have you complained and, if so, what was the response?

    I haven't experienced this problem yet, but it would truly mess me up if it started happening so I sympathize greatly with you and others. Definitely time to raise a fuss.

  3. Scott says:

    I too have had problems in the last 6 months. I no longer do business with anyone that is net 60. I have refused larger companies or offered to “finance” them for 60 days for a 3% increase in price per month.
    I have noticed that they also want a discount for paying in 45 days typically a 1.5 % which is fair as long as they pay the 3% finance fee. It is getting crazy.

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