Big Companies Stick It To Small Businesses

Jeffrey Leonard, CEO of investment firm Global Environment Fund, explains the impact of big companies' late payment policies on small businesses.

He says in the Washington Monthly,, where he is chairman, that small businesses are getting shafted by big businesses.

What is different in this downturn is that, thanks to structural changes in industry supply chains, large firms now have vastly more clout to engage in such behavior than small ones do. In fact, many large companies today have simply announced that as a matter of policy they will be paying their bills late—sometimes as much as four months late. This in effect forces small businesses, which really are hurting, to make free loans to big businesses instead of being able to use their working capital. As the CFO of one small business that we invested in says about his company’s subcontract work with big aerospace companies, 'They basically have their whole supply chain of businesses like us helping to finance their business.' His company was told recently that for any new work from its largest customer, they will have to wait ninety days rather than the customary thirty days to be paid. What is interesting about this phenomenon is that America’s large corporations don’t generally need this money—statistics show that they are sitting on nearly $2 trillion of idle capital on their balance sheets.