Late payments an ongoing problem for entrepreneurs

Even if it's just a small bill or tiny tax rebate, knowing that your money is in somebody else's pocket for a minute longer than necessary is just plan wrong, Dianne Buckner writes.

Don’t you just hate having to wait for money to arrive that’s rightfully yours?  Even if it’s just a small payment or a tiny tax rebate, knowing it’s in someone else’s pocket for a minute longer than necessary seems just plain wrong, not to mention aggravating!

Small business owners suffer this type of stress regularly, and sometimes it’s not just an insignificant amount of money at stake.  Big or small, it could be revenue that will make a difference to the company’s survival. 

From the bill payer’s perspective, holding back a payment is a surefire way to ease financial pressure.  And it seems clients of any size often feel no compunction to use the strategy.  It likely appears to be risk-free.  Small firms are typically so hungry for business, they’re disinclined to pursue legal action, or even make a fuss about waiting.

But according to some recent research, this type of pay delay is one area where Canadians are having a better go of it than Americans.  Wait times are getting worse south of the border, and slightly better here.  But not getting paid in a timely fashion remains a chronic irritant for Canadian entrepreneurs.

"I’ve only ever experienced long payable terms," says Ryan Palmer.  Palmer started his Prince Edward Island-based web development firm, Resonance Development, five years ago. 

 "It’s a very difficult thing to deal with and it’s not something I picked up in business school at all!"

Palmer has a range of clients, both Canadian and American, from small start-ups to Fortune 500 types.  He waits as long as 120 days at times, to be paid for work that was completed on schedule. 

"It’s really a major barrier to entry for people who want to be self-employed," he observes.  "Unless you’re right out of school and can live quite cheaply and can afford to wait, then it can be quite uncomfortable."

Palmer says his larger clients are more predictable.  He knows they’ll pay at some point, he just doesn’t always know when.  "You can put whatever you want in your agreement, for example, payment is due in 30 days, but if they’re big enough, they can set the terms by which they do business." 

When I asked what large companies typically set as their payment terms, Palmer laughs. "They do whatever they want!"

Trevor Boller tells a similar story.  He runs his own photography business in Edmonton, and while individuals usually pay promptly, he finds that large companies often take at least two months.  The delays are consistent; they haven’t got any better or worse.

"Corporations like to process their bills via invoice," he explains.  "So when I do an event for them, they send the invoice to their accounting department.  That slows down the process."

Boller says because his company is still young, he doesn’t have a "surplus" of cash on hand.  And he believes that the waiting game is one reason a lot of entrepreneurs fail.

"You hear of all those businesses that don’t make it in the first year or two, and I think this is one of the challenges they probably came up against.  So they had to close it down and go get a regular job," he says.  "I had to face that last month.  I was asking myself if I should go get a job.  But I just hung in there and this month is a whole different scenario."

Part of the new scenario is that Boller asked a couple of his larger clients to pay immediately.  After some initial resistance, they agreed. 

There’s no such good news in the USA, according to a recent study done by Moody’s and credit reporting firm Experian. It shows that that in the U.S., waiting periods have increased by 14 per cent over the past year. 

Meanwhile, research done by the Canadian Federation of Independent Business says our situation is betting better.  In its monthly poll of members (on a range of issues), 20 per cent said they’re waiting longer for bills to be paid.  A year ago, that share was 30 per cent.  

"It’s true that the Canadian economy is performing better than the American economy," says CFIB chief economist Ted Mallett.  Referring to the economic downturn that hit in 2008, Mallett has this to say:  "Businesses were not hit as hard here as they were in the States." 

One key point though: while the CFIB says things are improving from a year ago, the group doesn’t have any data from the period of time that predates the recession.  Mallet and his colleagues in the economics department only added that question once the downturn was underway.  That makes it hard to say that these latest results show anything other than a normal waiting period. 

That tells me Ryan Palmer’s talk of big companies flexing their muscles in dictating terms of payment, and Trevor Boller’s complaint of big, slow-moving accounting departments, are both likely entirely typical.

But it’s not only big companies that play this game. Years ago I worked at a tiny firm (I was one of two employees) that used translation services.  Our translator was very reliable, and when she delivered reams of documents on schedule, she asked to be paid right away.  She explained that she was getting married that month, and naturally enough, had plenty of expenses to cover.  

I went to the owner of the company asking if we could expedite the cheque — but the answer was no.  "She’ll get paid when we get paid," said my boss.  At the time, this struck me as unconscionable.  How unfair!  And how unfortunate that the end client was the federal government, which meant payment — for us and the translator — was likely months away.  

But of course, I wasn’t in charge of the books, and had no idea of my entrepreneur employer’s financial situation.  Perhaps she just didn’t have the money either. 

So I suppose the pay delay is the way of life for business-people.  At least it’s one where Canadians can take some comfort that here, it’s not getting worse.