Late payments plague small business

Late payments plague small business: 

When it comes to getting paid, it's slow going for small businesses. Payments that were once "net 30" — 30 days after an invoice date — have become net 60, net 90 and longer, as clients try to keep their cash longer in an uncertain economy.

Nearly 40% of firms surveyed by the National Federation of Independent Business said "receivables," or money that customers owe, are coming in at a slower pace, new NFIB data show.

Private businesses in the manufacturing, retail and wholesale industries are really feeling the pinch, says financial data firm Sageworks.

    *

      STORY: Turning your hobby into a profitable small business

    *

      VIDEO: Lisa Price turns love for fragrance into money-making venture

    *

      STORY: Booty Pop entrepreneurs turn niche idea into successful firm

On average, manufacturers with less than $10 million in annual revenue received payments 48 days out in 2011. That's a six-day increase since 2010 and a 10-day rise since 2006.

The delays affect cash flow, making it tough to for small businesses to meet payroll, pay rent or buy supplies.

"This is a huge issue," says Sara Horowitz, executive director at Freelancers Union, a non-profit group that includes self-employed workers such as consultants and contractors. "I am getting e-mails from members who have a hard time paying for their health insurance because their clients aren't paying on time."

Nearly 45% of its members struggled to get paid last year, according to a national Freelancers Union survey. The average amount they were paid late: $10,000.

Some delinquent payers don't have money for bills. Other cash-strapped firms pay what they deem more critical bills first, such as employee salary or rent. Then there are those who use the delay to get an interest-free loan.

The lags have caused a vicious cycle: Firms that don't get paid in a timely manner in turn can't pay their own debts.

A quarter of NFIB members are paying their bills more slowly. "When times get tough, you try to pay more slowly and collect more quickly," says NFIB chief economist William Dunkelberg.

Richard Haig's fire and security alarm firm, Haig Service, is well aware of that tactic. "We're in the middle, getting squeezed on both sides," he says. "We have to pay quicker and get money slower." A healthy credit line — and open communications with his bankers — have helped, but he's also vigilant about his bookkeeping. "We actively track everything as to where our revenue is coming from and how we're going to get it," he says.

Those owed money can also threaten to sue or stop providing services, but unless they're a client's only service option, future business can be jeopardized by taking any harsh steps.

"If you're not a monopolist, you're stuck," says Dunkelberg.

Jeremy Coburn, president of JMS Wind Energy, first prods his tardy payers via e-mail, "then I call and say, 'Hey, the little guys are starving — what's up?'" So far, that's worked; his clients may be late, but they do pay.

"Being the small fish, I don't want to lose business by bugging them too much," he says. "You don't want to bite the hand that feeds you