March 29, 2024

You’re the Boss Blog: For Contractors, How Quick Is Obama’s QuickPay?

The Agenda

How small-business issues are shaping politics and policy.

In September, The Agenda reported about the Obama administration’s QuickPay program, an effort to reduce payment time for small-business invoices from 30 to 15 days. Earlier this month, a reader, Paul Kakert of Davenport, Ia., wrote to express his skepticism.”Sure, it sounds good. Paid within 15 days,” he commented. “But within 15 days of when?” He went on:

“It’s not 15 days from the date of invoice, which in the commercial business industry would be the norm. It’s 15 days from whenever the government gets around to approving the invoice. What the president fails to take into consideration is that the layers of government inadequacy can take weeks to approve an invoice submitted by a small business.”

I put Mr. Kakert’s question — “within 15 days of when?” — to Moira Mack, a spokeswoman for the White House Office of Management and Budget, which issued the new guidelines. It turns out Mr. Kakert is right — it’s not 15 days from the date of invoice. Or rather, not just from the date of invoice. Ms. Mack quoted from the memo, which said, “To the extent practicable, federal agencies shall establish a goal of paying small-business contractors within 15 days of receiving proper documentation, including an invoice for the amount due and confirmation that the goods or services have been received and accepted by the federal government.” To some owners, that may sound like 15 days from whenever the government gets around to approving the invoice.

In the commercial world, standard payment terms have typically been 30 days from the date of invoice, but corporations have been stretching that to 60 days or longer, according to Jeffrey Leonard, a venture investor who wrote about the new normal for The Washington Monthly.

That point was emphasized by Joseph Jordan, the Small Business Administration’s associate administrator for government contracting and business development. “When I talk to small businesses about getting paid by the government versus getting paid by the commercial sector, in terms of turnaround, they’ll take being paid by the government seven days a week and twice on Sundays,” said Mr. Jordan, who acknowledged that there could be approval delays. “When you’re talking about five to eight million contract actions a year, are there bound to be issues with some individual contracts? Absolutely,” he said. “But by and large, the government pays its bills very promptly.”

The White House, he continued, “is definitely looking at the total through-put time. There’s a clear place where we had control — cutting the 30 days in half. The president took all these factors into consideration and said let’s do what we can and cut payment time from 30 to 15 days.

“Let’s not make the perfect the enemy of the good.”

Article source: http://feeds.nytimes.com/click.phdo?i=4b6787ea12b74d8809b638fe8d3c53fd

You’re the Boss Blog: Will Obama ‘QuickPay’ Policy Mean Billions to Small Businesses?

The Agenda

How small-business issues are shaping politics and policy.

On Wednesday, the White House made good on President Obama’s pledge, in his jobs speech to Congress last week, to speed up government payments to small-business contractors. The new policy, which has its own product-like branding, QuickPay, reduces the government’s payment time from 30 days after receiving an invoice to 15 days. In a statement, Karen Mills, Small Business Administration administrator, lauded the new policy: “QuickPay is a smart and powerful boost that effectively delivers billions more dollars into the hands of small contractors so that they can do what they do best — create jobs.”

Really? Billions more dollars? The Agenda thought an elaboration might be in order here, so we called Joe Jordan, the S.B.A.’s associate administrator for government contracting and business development.

The billions more dollars, he said, represent the interest saved on the cost of financing the goods and services produced for the government. Many businesses — perhaps most — do not finance their production or inventory out of earnings but rather by borrowing against lines of credit or taking out other loans. Even those that do rely on earnings then have an opportunity cost. “By cutting the receivables time in half, you’re reducing the negative float — it’s the financing cost of the good or service they just sold to the government,” Mr. Jordan said.

Small-business contracts officially totaled about $98 billion in 2010, so the financing cost that will be saved by halving payment time is some small percentage of that. “We don’t have a hard number, but it’s billions,” Mr. Jordan said. “But it’s single-digit billions.” For businesses with large contracts, in the range of $100 million, Mr. Jordan said the reduction in negative float could make a real difference in freeing up money for investments. “There are certain break-even points where the math definitely works on hiring new workers because of the savings.” Mr. Jordan, though, could not say immediately how many small businesses receive $100 million contracts.

There are other benefits, too, he added. Faster payment lessens the uncertainty in making those investments and reduces the transaction costs associated with financing production — the time spent tapping credit lines or paying them down.

So there you go.

QuickPay applies only to officially designated small-business contractors, not the behemoth corporations that do much government work. And the policy covers only prime contractors, those companies that deal directly with the government. But many small businesses also serve as subcontractors to other prime contractors, and Mr. Jordan acknowledged that subcontractors often have to wait to be paid for their work. (In fact, according to Washington Monthly, some major corporations have, as a matter of policy, extended payment times to small vendors to 60 or even 120 days.) Mr. Jordan said the administration had taken up the issue, but added in a subsequent e-mail that “expanding this to subcontractors is still an open question.”

Article source: http://feeds.nytimes.com/click.phdo?i=5ed4ecfce61bdbaf40d73e49150d8f6c