A 2012 small business credit index report confirms that big businesses are taking longer to pay their bills.
According to the report conducted by Experian, a company that offers credit reporting and marketing services to consumers and businesses, and Moody Analytics, an analysis, data, forecasting and credit risk management company, businesses with over 1,000 employees have shown the greatest increases in paying bills after the contracted terms. But regardless of size, all businesses have increased in average days beyond terms (DBT) payments over the past year.
While small businesses paid less than seven days beyond terms (DBT) in 2011, they are paying nearly eight days past contracted terms in March 2012. Businesses with over 1,000 employees or fewer than nine, however, have seen the greatest jump in late payments over the past year.
“One of the things it is important to point out is that DBT has grown over the past two years regardless of business size,” says Adam Fingersh, senior vice president of marketing and product services for Experian. “One and a half years ago, the smallest businesses were impacted the most. With the last report, we are able to see a significant decrease in the increase of DBT. Businesses are not as impacted. There is light at the end of the tunnel.”
So what does that mean for growing operations? According to a business consultant familiar with the green industry, the trend of increasing DBT is not likely to continue if the spring sales remain profitable in the coming years.
“We have had a good year. Cash flow is great, which doesn’t mean that we have all our bills paid, but I think people will start catching up with overdue obligations,” he says. In order to speak frankly, he requested anonymity.
Even though some growers may not have the same size clients as say, Walmart, the consultant guesses that even smaller greenhouse owners play favorites when paying off debts.
“There’s a psychological imbalance that there is more pressure to pay [larger companies] first, and those companies have more means to exert pressure on people who have not paid their bills. The squeaky wheel gets greased,” he says. “A repayment plan should be devised an all creditors should be advised about how they will pay.”
To keep business relationships intact even when you can’t pay, the consultant recommends contacting creditors first.
“Say, ‘Look, this is a tough time. Here’s where I’m at. Here’s what I can afford to pay you, and I will pay you,’” he says, advising that businesses must also back up these claims with a cash flow projection.
Although many businesses do not complete or do not know how to complete a cash flow projection, the consultant stresses the document’s importance. Businesses should be able to predict where they will be financially in twelve months and update the projection after each month. By continually updating, the projection always includes the next 12 months.
“You need to know where you will be on a cash flow basis in the future. I call the cash-flow statement a piece-of-mind statement. You can change it as you go, but if you always know if you will be in the next twelve months, you will never go to bed worried,” he says.