Net 30 Blog

Small business payments stabilizing in the face of uncertainty

January 15th, 2010 by Alex Coté

Just last month, we reported that small businesses were paying their bills in an increasingly timely manner. After a year of predictable delinquencies, Main Street was exhibiting payment behavior more typical of better times. But as we said then, and as is evidence in the latest NFIB survey, this improving behavior seems to fly in the face of waning confidence in demand, continued weakness in the jobs market, and what remains a less than rosy economic outlook. This month, the numbers (below) were again good – average days beyond terms or DBT went down ever so slightly — remaining fairly consistent with what we’d seen in our November data. Combined this nominal improvement with a slight slowing of payments from big business, and the payment behavior gap witnessed earlier in 2009 had almost vanished – yet another sign that things could be returning to a sort of “normal”. We’ll have to wait a few months to see whether such a trend can be sustained, but the data taken in the context of larger market trends does tend to introduce some rather interesting questions, namely:

1. Have the most delinquent companies (those paying at 90+ DBT), many of which have outright failed, simply been flushed out of system? In other words, are all business simply benefitting from less drag and write-offs?
2. Given the scarcity of credit, is it possible to maintain such payment behavior AND invest in growth and expansion (e.g. hiring new staff)?
3. Are the largest and most critical suppliers forcing smaller partners into increasingly less favorable payment terms?
4. Have large businesses substantially slowed their payments to their smallest partners, thus putting increased pressure on Main Street to make up the difference in working capital?
5. Are small businesses, increasingly cognizant of more stringent credit conditions proactively improving their credit ratings in the hopes of securing near-term lending?
6. Are we witnessing the emergence of a more risk adverse culture among entrepreneurs where opportunity is being weighed against predictability to ensure optimal working capital?

While a blog hardly constitutes a scientific survey, we’d love to get your insight and opinion. To what do you attribute the stabilizing cash flow?

• Posted in: Market Trends, Small Business, Smalll Business Index
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