Strom’s Simple Stimulus Solution

Usually, I write about interesting trends and technologies but today my focus should have a lot wider appeal. I have a solution for our economic woes, and it doesn’t involve big taxpayer bailouts of fatcats, misguided tax cuts, or any really big effort to overhaul our financial systems requiring legislation too thick to comprehend by your average Congressperson. It is something that can appeal to Democrats and Republicans, Tea Partiers and Tree Huggers alike.

In fact, it is so simple that you can get it in a sound bite. Here goes:

Let’s ask all businesses to get rid of their payables, and go to net 15 days. Get rid of lengthy payment cycles, and we can stimulate the economy in a matter of a month or two.

When was the last time your company paid their bills quickly? I am thinking somewhere around 2007. We have turned our creditors into lending institutions, unregulated, unwilling and unwary ones at that.

One of the first things that In-Bev did when they took over Anheuser-Busch here in St. Louis back in 2008 was to institute 120-day payment cycles on all bills. They basically turned themselves into the In-Bev Bank, keeping their suppliers’ cash for an extra quarter. It was a neat accounting trick, but it was a dirty one. In one move, they took millions of dollars out of the economy and put it in their new “bank.” That money has disappeared forever. Until now.

By accelerating payment, we move money back into the economy at a time when it is needed. We eliminate our receivables and we can spend more to expand our businesses, or at least make payroll, or build more widgets and deliver more services.

We don’t have to rejigger the already too-complex tax code. We don’t need lots of lobbyists running around telling us what to think. There are no Senators from Midwestern states to hold us hostage for their pet programs or businesses. We don’t need new regulations to prohibit credit swaps and new securities that ten people on Wall Street can only understand. We just need the force of will and determination to make us all a great place to do business once again.

As someone who runs a small business, it hit me that I have no payables to speak of. Of course, receivables are another matter entirely and in the past year I have seen the average payment times get longer and longer, as my clients hold on to their cash. I pay my bills promptly, not that I have much choice when the rent is due or my cable bill arrives. My biggest payable each month for my business is my credit card, and I choose to pay it off when it arrives. Call me a dinosaur, but that’s the way I want to do business. I just wish others would follow.

Call this my hopey-changey kind of stimulus. It might just work.

5 thoughts on “Strom’s Simple Stimulus Solution

  1. Evaluated Receipts Settlement (ERS) is the way to do it. It already exists, has been proved to work, and exceeds all audit standards. In an ERS exchange, the buyer sends an electronic Purchase Order which is accepted electronically by the seller. When product is shipped, the seller sends an “advanced shipping notice” with a list of what is being delivered against which open purchase orders. On receipt at the buyer’s warehouse/store/facility, the product is received electronically and payment is generated automatically.

    There is no paper. There is no accounts receivable (a big saving in expense). There is no accounts payable (another big savings in expense). And most sellers will provide the buyer with a discount worth at least as much as the buyer could earn by keeping their money for 45 to 120 days.

    ERS has been around since the early 80s. Large companies adopted it quickly. Smaller and medium sized businesses have delayed. There is no good reason not to implement ERS with every trading partner. It will save money and make money at the same time. It makes sense, not only today, but every day.

    Steve Epner
    Brown Smith Wallace Consulting Group, Inc. and
    The Center for Supply Chain Management Studies
    Saint Louis University

  2. Thanks Steve. Another reader writes:

    NormalIy I don’t respond to these types of email’s but you hit a cord deep within me. I would say AMEN to the approach of paying bills NET 15. I like it because number 1 it is the right thing to do. Someone has performed a service and if you valued that service pay the person. Things are now automated, that this can be done very easily.

    Number 2 it appeals to my belief structure, “do unto others as you would have them do unto to you” . I worked as an independent consultant for a time and had to threaten a couple of time of not showing up on the job, because my client did not pay me. I had to max out my credit cards to live. I did get payed, after I had to agree to come to work for them. NOT FAIR.

    Number 3, where do we get off thinking that business is just to make money. Business can make money yes and they should, but at what price? Dirty tricks have a way of backfiring.

    Number 4, it is time that we change they way we do business, it is time to help one another, not strangle each other. We say we are Americans, yet we sit in our rooms and say we don’t know how to help each other. That is bull, it is “Man in the Mirror” time (thanks Mike for that one). Pay the man for the work and stop playing games!

    Donna M. Burch

  3. Another reader relates this old tale:
    It’s a slow day in a little East Texas town. The sun is beating down, and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit…..
    On this particular day a rich tourist from back east is driving through town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.
    As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.
    The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
    The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.
    The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.
    The hooker rushes to the hotel and pays off her room bill with the hotel owner.
    The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.
    At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.
    No one produced anything.
    No one earned anything.
    However, the whole town is now out of debt and now looks to the future with a lot more optimism.

  4. Another reader writes:

    I’m sure your solution would work for small vendors that have no payables !!

    But I think it would bring global trade to a standstill and force many companies into bankruptcy (mine included).

    The bankrupt companies would not be able to pay their bills, so their suppliers would not be able to pay their bills (or repay their investors).

    You might think that there might be one bright spot. At the end of the chain, and standing to loose money and not being able to call on anyone else will be the people who lent the money in the first place to get the whole cycle working. And the biggest of those would be the Chinese government. I’m not sure I want to annoy those guys too much.

    Of course I do agree that large companies using their muscle to extend their payment time beyond negotiated terms is highly unethical, and I wouldn’t mind figuring out a solution or a penalty for that !

    If you are a Republican I guess you would say “Let the market sort it out”, which means you must refuse to do business with those people who don’t pay on time (ready for that ?) If you are a Democrat you would want the Government to introduce a law about it, with real sanctions (ready for that ?)

  5. David,

    Net 15 is a wonderful thing for small businesses. We have been operating that way for years. We invoice weekly, net 15. Since we pay our employees twice a month, and since payroll is our largest expense, this assures that the clients’ cash is in-hand when it is time to write the payroll checks.

    Switching from invoicing monthly, net 30, to invoicing weekly, net 15, reduced our average aging from about 50 days to about 7. Many of our clients opt to pay by credit card so I have no idea how quickly they actually pay the balance but at least Hen’s Teeth Network is out of the money lending business.

    — Art Z.

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