A bill passed by the state Legislature and that requires state agencies to pay small businesses within 15 days of receipt of an invoice will go into effect 180 days after Gov. Andrew Cuomo signed it into law in late December. That’s not much longer than many private businesses now force suppliers to wait for payment.
Despite passage of the measure, an increasing number of small businesses in New York will still be forced to wait for 120 days and more for payment from their manufacturing customers. According to a recent survey by the business research firm APQC, companies that began forcing extended payment terms on suppliers in response to the 2008 financial crisis are still doing so as a matter of policy.
This is having a damaging effect on the small firms that account for 98 percent of all businesses in New York and employ more than half of the state’s private-sector workforce. If these suppliers can’t hire, their productivity and innovation will stagnate. And if they shut down, competition withers and prices skyrocket.
This was a problem that should have been solved by now. In July 2014, a delegation of business representatives visited the White House in support of the Supplier Pay Initiative, a pledge meant to ensure suppliers are paid faster and can increase their working capital.
But the reception in the business community has been disappointing: Fewer than 50 companies nationally, including Xerox Corp., have committed to pay invoices in 45 days or fewer after receipt.
In APQC’s survey of 105 senior executives, 55 percent said they cannot hire more workers because of late-payment practices. Even more troubling is the 57 percent that say they, or other suppliers, will likely be forced out of the market because of these practices. The survey is available online at apqc.org.
As the head of a trade group whose member companies are mostly small, family-owned businesses that supply the consumer packaged goods industry, I know the challenges and frustrations they face in trying to grow while meeting monthly financial obligations like payroll expenses, rent, loan payments and payments for raw materials. Extended payment terms from their customers only add to the uncertainty they face.
In a sponsor’s memo of the state’s prompt payment bill, Assemblyman Michael Blake of the Bronx correctly noted that timely payments “ensure that small businesses and their employees are given the best opportunity to succeed and sustain themselves.”
At a time when U.S. companies are reportedly hoarding more than $1.4 trillion dollars in cash, paying suppliers in a reasonable amount of time isn’t a sacrifice. This simple act will increase working capital and benefit everyone. When working capital increases, so does job creation, investment and innovation. It’s good for New York’s economy, good for consumers, and it’s the right thing to do.
Chuck Yuska is CEO of the Association for Packaging and Processing Technologies, a trade association made up of more than 700 member companies.
1/15/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email firstname.lastname@example.org.