Wouldn’t It Be Great If Your Customers Paid You Faster?

August 11, 2015

By Mitchell Kopelman, partner-in-charge of Tax

As a small business owner, do you worry about your cash flow? Small businesses are the backbone of the U.S. economy, accounting for 63 percent of net new private-sector jobs, 48.5 percent of private-sector employment and 42 percent of private-sector payroll. [1] However, due to conventional invoicing and payment terms, many small businesses often have trouble meeting their working capital needs while purchasers sit on cash that could have been paid to the suppliers. Lacking the cash flow, many small businesses turn to external financing, spending unnecessary funds to cover their working capital when that money could have been spent on growing their business.

Recognizing the value of small businesses to the U.S. economy, and that cash-rich companies may be able to pay their suppliers sooner than the conventional payment due date, the White House launched the “SupplierPay Initiative” in July 2014. The SupplierPay Initiative is a partnership between the private sector and the White House that aims to strengthen small businesses by increasing their working capital and fostering business growth, eventually leading to an overall healthier U.S. economy by adding more jobs, investments and production. By taking the “SupplierPay Pledge,” participants commit to providing a working capital solution to small business owners by paying their suppliers faster (within 15 days), assisting in lending, sharing best practices and lowering the administrative burden for small business partners to take advantage of the company’s commitment. [2]

While the Small Business Administration (SBA) generally uses a “size standard” to define “small businesses,” the Pledge allows each participant to define what “small suppliers” are to them. [3] For example, while it is unclear whether Lockheed Martin uses a bright-line threshold to define small businesses, the company has stated that it relies heavily on the information provided by the SBA, and would include small disadvantaged businesses, woman-owned small businesses, historically black college and universities and minority institutions. [4] Currently, there are 47 companies that have signed on to the Pledge.

If you worry about your working capital or business growth, your solution may be as simple as talking to your customers that are large companies. One of our high-growth technology companies shared their experience of asking one of their customers to join SupplierPay. They got paid in less than a week; previously, they would have had to wait 60 days. Even though the SupplierPay Initiative is not binding law, it highlights the fact that many companies may have already joined SupplierPay or rolled out other programs, such as supplier diversity programs, to strengthen their supply chains and to partner with their small suppliers. Take the time to speak with your customers about your cash flow, and ask them to join this initiative.

[1] Office of Advocacy, SBA, “Frequently Asked Questions.” Last accessed June 30, 2015.

[2] “SupplierPay Pledge.” Last accessed June 30, 2015.

[3] The size standard varies from industry to industry and is based on NAICS code. The SBA has a size standards tool to aid businesses in making the determination. The tool can be accessed here.

Doing Business with Lockheed Martin FAQs and “Small Business/Supplier Diversity Program,” Lockheed Martin. Last accessed July 6, 2015.

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About the Author

Mitchell Kopelman

Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.

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