Spread of Late Payments and Its Effects on the Economy

The worldwide web of businesses depends on each entity’s ability and desire to uphold agreements. It is accepted as universally true that each party must pay for services rendered, or render services for timely payment.

We can only wish that it would be that simple. When businesses are unable to pay off invoices on time on a widespread basis, what results is what Wall Street Journal reporter Emily Maltby has called, “a cash-crunch contagion.” One company’s inability to pay another leads to the second business’ inability to pay those it is in debt to, and so on until delinquency spreads like wildfire, becoming a national affliction with international consequences.

Of course, the causes for delinquency will come as no surprise to business owners:

  • Slow consumer activity
  • Constricted capital markets
  • General economic pessimism and uncertainty

All of these factors have made it very difficult for businesses to make good on both their receivables and payables. In this sense, delinquent receivables are at the core of the financial crisis. They affect small businesses and their abilities’ to provide quality services, in turn affecting consumers negatively. Delinquent receivables lower credit ratings nationwide and only worsen banks’ already timid lending policies.

The solution? Small business owners can and should factor their receivables, and get your cash instantly. If the customer has decent credit, there is no reason why a business owner should have to wait a long time to get paid.

Click here to learn more about small business factoring.

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