Small businesses are waiting longer for commercial customers to pay their bills as many big companies continue to hoard cash to bolster their own working capital.
The trend, which began in the recession and has worsened in recent years, is putting growing pressure on people like Nirav Sheth, who owns a Web-development company in Washington.
Mr. Sheth’s seven-person Anatta Design has been forced to postpone hiring and expansion because of the longer wait for payment. Last year, for example, it sent a $6,600 invoice to an online retailer for several months’ work redesigning an online “shopping cart.” The entrepreneur, who says he didn’t have a credit line to fall back on, received payment in full 404 days after the date on the invoice.
Many small-business owners say they’re seeing payments from larger customers stretch from 30 days to 60 and even 90 days after an invoice is issued. The longer wait is taking its toll on the companies, which often have to borrow at costly rates to fill gaps in their cash flow between payments.
“If you’re working with one of these large companies as your only customer, they have the power. They can go to somebody else, but you can’t go anywhere,” says William Dunkelberg, chief economist of the National Federation of Independent Business, a small-business lobby.
Up to 64% of the 850 small businesses the group surveyed last year reported having invoices that went unpaid for at least 60 days, and 20% said delinquencies were getting worse. Nearly all the companies surveyed had less than $5 million in annual gross sales.
“This is one area where large firms often take advantage of their market power to strong-arm small-business suppliers and customers,” the group’s report said.
At the end of the first quarter, companies in the S&P 500 Index had record cash holdings of more than $1 trillion, compared with $609 billion four years earlier. Nonetheless, over the past four years, such big companies as Apple Inc.,AAPL +0.72% Wal-Mart Stores Inc.WMT +0.10% and Ford Motor Co.F +1.53% have generally increased the number of days they take to pay vendors, according to Charles Mulford, the director of the Georgia Institute of Technology’s financial reporting and analysis lab.