I watched Jeffrey Leonard on the Colbert Report last night
(http://www.colbertnation.com/...) and read his Washington Monthly feature this morning
(http://www.washingtonmonthly.com/...) which discusses how large coroporations are waiting 2, 3, or 4 months to pay invoices instead of 1 month, and how that affects their small business vendors. I'm very happy to see someone addressing this issue, and agree with Mr. Leonard's arguments. But I don't think he frames the problem in terms that most people can relate.
I am a small business owner. In fact, I am the smallest type of business -- a one person operation, who does freelance website and software programming for design and marketing agencies. 2010 was, by far, my most productive year in terms of billed work. But in 2010 I generated, by far, the least amount of revenue. And while I'm still working/billing at a high level, I'm having trouble paying the bills. None of my clients are large corporations, but the issue Mr. Leonard describes affects me just the same.
Have you ever had a point in your career where, after years on a job, you were suddenly laid off, even for only a couple months? Yes, you can collect unemployment, but that checking account still drops to zero pretty damn fast. Because you've spent years living your life based on the expectation of a certain level of monthly income, and you can't just turn off the bills when that paycheck doesn't arrive. If two months go by without the expected income, it creates a hole in your finances. And it can take a long, long time to climb out of that hole.
The same is true for most small businesses. Their monthly income is used for payroll, office rent, utilities, loan repayments, etc. Even in good economic times, small businesses essentially survive month to month.
Many of these small businesses have clients who are larger corporations -- and in these cases, those corporate clients usually account for a significant portion, if not the majority, of their revenue. So when a corporate client decides to wait an extra two months to pay invoices, it creates a sudden gap in cash flow for the small business. And it can take several months, or even years, to catch up.
So why does that affect me? Most of my clients are small businesses who in turn have large corporate clients. Currently, all -- and I mean ALL -- of my clients in that category are now struggling just to make payroll, even though they're as busy as ever. I've had great working relationships with all my clients, but I come second to their own employees and critical monthly expenses. It's straining our relationships, and I have to continually harrass some just to get partial payments. But they have to keep sending work may way so they can continue to operate, and I can't say no because then they'll never get paid by their clients, and therefore will never be able to pay me.
The decision by large corporations to regularly delay payments isn't just a bookkeeping issue. The economic damage is real, and it continues. I've experienced first hand the rippling effect of this.
But I'm kind of a political idiot. So what, other than strong words by politicians, can be done to correct this?