News

Anthony Bennett, Managing Partner

When the history of COVID-19 is written, one chapter will certainly talk about how the virus killed off a good portion of small businesses in the US.  In The Wall Street Journal on October 9, Justin Lahart demonstrated how “thousands of small firms have been driven out of business while their larger counterparts have largely survived and, in some cases, even flourished.” While the PPP loans issued by the SBA were intended to help small business, it turned out that much of the money went to larger organizations.

Small businesses account for around 40% of US employment, and their vulnerability to a prolonged downturn will have dramatic consequences for millions of people.  While efforts to encourage people to buy from small businesses may be helpful for consumer-related companies, those who focus on B2B often find themselves in a crunch.  Yet, as the country waits for another stimulus package, there may be a faster, easier way that small businesses can be helped — by big business.

Dealing with large multinationals is intellectually stimulating, hard work,  and often financially rewarding, but it’s a double-edged sword. Over the last few years, many of these large corporations have adjusted their policies to pay their vendors and partners very slowly, or they don’t pay at all.  For most, the standard terms of payment are now 60-90 days. Some of the largest marketers in the world pay in 120 days — and even then, vendors are only allowed to invoice at the end of a project.

For example, if a small company is commissioned to do a two-month project starting February 1, 2021 they may see payment in June 2021. And this is if the client pays. Many times, invoices get “lost.” One real world example is with an enormous global corporation that still pays by paper check and has said  that due to COVID-19, no one is going into the office to print these checks, so they’re not sure when payment will be issued. Legal threats are pointless; they’ll harm relationships, and lawyers’ fees will eat up any of the proceeds.

It’s understandable why companies hold onto their money. It’s prudent to manage cash flow appropriately. Of course, many large organizations are hurting too…but not all of them. Justin Lahart also reported in his article that in the first nine months of 2020, large companies issued $1.9T in debt. So the capital is there — they just don’t want to give it up.

If larger companies really want to help the economy, they should not only consider their accounts payable policies, they should also actively encourage the hiring of small businesses and re-look at their procurement policies. It can often take 3-6 months and a Herculean effort to sign a Master Services Agreement with a large corporation. This represents a major hurdle for small businesses who have lost potential projects because it would take too long to work through procurement. Obviously, this will cost them, but it will keep their suppliers afloat, and more people employed. They should also consider moving their payments into the 21^st century. There is no reason why global behemoths should still issue manually printed paper checks when electronic payments are now ubiquitous.

Most small business owners realize they’re on our own. The government and the banks aren’t going to bail everyone out. As for small business owners, they signed up for this. But during times of crisis, when companies spend millions on ad campaigns talking about how they’re spending millions on charity, big businesses can demonstrate their humanity by supporting small businesses, so they can live another day to continue to support them.