White House Nudges Large Firms to Speed Up Payments to Small Vendors

Obama got pledges from Apple, Coca-Cola, AT&T, Johnson & Johnson and several other big companies that promised to speed payments to firms down their supply chains in a move that should boost cash flows and increase investment by those smaller businesses.

“SupplierPay” is a voluntary program in which the big firms committed either to paying small suppliers faster or to helping them get access to lower-cost capital. The program set a goal of having small-business contractors get paid within 15 days of delivering a product or service so that their cash flow is strengthened, they have less need to borrow, and will be more inclined to add employment.

This strategy could offer mid-sized firms preferred status among certain vendors, turning a vendor into a high-value partner and allowing them access to everything from free upgrades to pivotal advice, extra training and better service.

Paying small companies slowly has become increasingly common. As the entire U.S. economy deals with patchy growth, sales and payments get stretched out. The zero-interest environment actually has encouraged some large corporations to extend payments to as long as 120 days under the rationale that their smaller suppliers aren’t hurt much financially by having to augment cash flow with credit.

This problem has become especially acute—or at least high-profile—in the marketing business where advertising and public-relations agencies have the audiences and skill sets to be heard on the issue. Procter & Gamble and a number of America’s other biggest advertisers have nudged payments back to 120 days.

In fact, some observers of the marketing business believe that the very existence of small ad agencies could be endangered if major clients persist in their slow-pay policies while interest rates begin to rise with economic growth. “New agency start-ups are certain to virtually cease and the total number of ad agencies could shrink dramatically, as will their dependent suppliers,” wrote Forbes.com contributor and veteran branding executive Avi Dan. “It may also lead to a squeeze on talent, as agencies will shed staff to survive.”

SupplierPay is a rare example of the Obama administration using its increasing penchant for unilateral executive action to act on an acute concern of business owners. The president and his senior advisors launched a program they called QuickPay in 2011 that aimed at helping small-business contractors get paid more quickly by the federal government’s large contractors. On the heels of the SupplierPay announcement, the White House said it plans to renew QuickPay in the future.