As a former banker and current small-business owner, I have experienced the financial services industry from both sides. Believe me, the view can be very different, depending on which side of the desk you sit.
For some time now, particularly since the inception of the Community Reinvestment Act, financial institutions have been designing programs and marketing them specifically to reach and serve small businesses.
'Check Is in the Mail'
However, a recent experience has taught me, from a small-business perspective, that lending to small businesses is quite different from being a good client of a small business.
Recently, we received a contract from a local bank to conduct a study. The study had to be conducted and completed in a far more expedient manner than normally allowed. However, my company (as with most small businesses) was grateful to have the business.
We agreed to work at an unusual pace and subcontract some of the work to get the project completed and results reported by the requested deadline. I also submitted our invoice on that date.
More than a week later, I received a call advising that the results of the study had been misplaced. Additional copies of the results were needed that day. So I stopped what I was doing to meet the client's immediate need.
Recognizing that internal payment procedures can take at least a month, I put the matter of payment aside. After a month had passed and we still had not received payment for the work, I called to inquire about the status of the payment.
Lateness Blamed on 'Mix-Up'
I was advised that a mix-up had occurred, and that the payment would be sent on Friday of that week. By Wednesday of the following week, I again called about the payment. Again, I was told that another mix-up had occurred and the check would be sent on the following Friday.
Several more Fridays passed, with still no payment received. By now, this account would be considered 60 days past due. If I were attempting to obtain a loan from this bank, they would question a 60-day late payment notation on my credit report, and in an extreme situation it might be the reason for denying the loan.
My concern arises from the fact that every day bankers make important decisions about the character and creditworthiness of borrowers, based on a credit rating or information reflected on credit reports. However, these lenders are seldom held to the same standards they impose on others.
As all small-business lenders can attest, maintaining positive cash flow s a major challenge. Having been a banker, I also recognize that delaying payments is considered by many banks a method to ensure positive cash flow for themselves. I understand the game and can appreciate how it is played.
However, I would like to advise bankers to be especially mindful of how they are paying their small-business service providers. Perhaps a system of identifying those payments as urgent would be sufficient to ensure prompt payment.
Simply put, when dealing with small businesses, apply the golden rule: Pay unto them as you would have them pay unto you.