National Small Business Week 2023: Why paying suppliers on time matters
Editor’s Note: Vistage is joining the U.S. Chamber of Commerce in calling on large companies to commit to paying their small business suppliers quicker. Learn more about the Prompt Pay Pledge and how you can spread the word!
Tom Sullivan has witnessed the harsh realities for small business owners who aren’t paid on time.
His law school roommate ran a company that staffed promotional events for major beverage brands, and for several years, things were good for the business. But then things went south. Clients began to not pay Sullivan’s roommate on time. And they weren’t just late — some were more than 100 days delinquent with their payments.
Those overdue invoices crippled the business, and Sullivan’s roommate was forced to shut it down.
Unfortunately, that scenario is far too common for small business owners, says Sullivan, who serves as vice president for small business policy at the U.S. Chamber of Commerce.
“I wish this wasn’t the case,” Sullivan says, “but if you ask any group of small businesses about whether their clients pay on time, there is always an example of late payments.”
The U.S. Chamber of Commerce is trying to change that reality.
In April, the U.S. Chamber introduced the Prompt Pay Pledge in an effort to ask large companies to pay small business suppliers faster. The Pledge is the driving force behind the Chamber’s Prompt Pay Initiative to encourage large businesses to ensure economic success for businesses of all sizes.
“Small businesses make up roughly half of America’s GDP, provide slightly less than half of the private sector jobs, and are responsible for two-thirds of net new job creation,” Sullivan says. “If the small business economic engine sputters, so does the national economy.
“I’m hopeful that our initiative will make a dent in this concerning phenomenon that gets little national attention,” he adds.
How the Pledge helps small business suppliers
Signing the Prompt Pay Pledge is simple and can be done in minutes on the U.S. Chamber website. When a business signs the pledge, it commits to:
- Providing timely payment for invoices and/or working to find a financing solution to help small suppliers access working capital at a lower cost
- Clearly communicating its payment policies and terms to small business suppliers
When a company signs the pledge, it will be recognized on the U.S. Chamber website, receive a communications toolkit to help spread the word about prompt pay and be among the first to learn about new resources and events dedicated to the initiative.
The U.S. Chamber website currently offers a variety of suggestions for how large businesses can help support small businesses, including speeding up payment processing, helping small businesses adapt technology, using small business suppliers in their operations and more.
There also are a number of resources for small businesses that focus on customer payment terms and recommendations, which are sorely needed to keep small businesses healthy, Sullivan says.
“When a small business supplier isn’t paid for two or three months after invoicing, the small business owner must finance the gap in payment themselves,” Sullivan says. “The combination of higher costs due to inflation and tightening credit due to interest rate hikes can make it impossible for a small business to cover that payment gap themselves or to take advantage of bridge financing.”
Inflation has ranked as small businesses’ top concern for five consecutive quarters, according to the latest MetLife and U.S. Chamber of Commerce Small Business Index.
“Rising prices puts additional pressure on cash flow for small businesses,” Sullivan says. “Getting paid quicker is one way to relieve some of that pressure.”
While the Prompt Pay Pledge focuses on large businesses helping small businesses, Sullivan hopes that it will have additional benefits.
“We have heard from many large businesses that they are looking for good suppliers to diversify their supply chains,” he says. “It is our hope that an outcome of our initiative will be that some fantastic small businesses will actively pursue business with the corporations that make the Prompt Pay Pledge commitment.”
Strengthening the bond
Sullivan also believes the Prompt Pay Initiative will help strengthen the bond not just between small and large businesses, but between small businesses and their clients.
For that to happen comes down to relationships, which Sullivan also says is key for avoiding lags in payment between large and small businesses.
“When it comes to paying on time, there can be some difficult conversations, so having a good relationship with a client is critical,” Sullivan says. “Building those relationships can be hard, but they are so valuable when it comes to establishing clear payment terms with clients and avoiding pay gaps.”
The Prompt Pay Pledge and the larger Prompt Pay Initiative are the latest in an ongoing effort by the U.S. Chamber to help all of its members — businesses both large and small, in every sector and in every state across the country — continue to thrive.
“We are always looking for ways to improve the ecosystem that exists between large and small businesses,” he says. “I’m really encouraged by the support and partnership we already have on this initiative. And we’re just getting started!”
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Category: Capital / Cash Management
Tags: National Small Business Week, prompt pay, Small business