[Editor’s Note: Today, the second day of 2015, we wrap up our best of 2014 series with our look at the U.S. government’s SupplierPay pledge, which originally appeared on August 25.]
On July 11, President Obama announced the SupplierPay pledge. Based on the federal government’s QuickPay initiative, which is designed to pay small federal suppliers more quickly, the SupplierPay pledge is a voluntary agreement that 26 large companies signed onto, stating they would either pay their small suppliers faster than they currently do or provide access to a financing solution instead.
If you’re following the business press, then chances are you’ve already seen reactions ranging from “this is a fantastic idea” all the way down to “this is a government overreach in the worst way.” But why does this pledge actually matter at all? Moreover, why did President Obama feel the need to launch this?
SupplierPay’s Small-Business Impact
President Obama’s administration is well-documented as calling small businesses the engines of economic growth. According to the Small Business Administration, small businesses create 65% of all net-new jobs; small businesses also tend to have more cash flow issues because every customer invoice is a larger proportion of their overall cash flow. SupplierPay’s goal is to get these small businesses paid faster to create greater cash stability and ultimately lead to more growth overall.
Making a public, albeit non-binding, pledge to pay small suppliers faster provides some public ammunition to hold the 26 large companies—Apple, Coca-Cola, and IBM among them—accountable for paying small suppliers more quickly than they currently do. This is also an extension of President Obama’s focus on using executive actions to effect change in policy at the government level.
More Working Capital Equals More Growth
Access to working capital can make the difference between stagnation and growth for small suppliers. There was a story I saw recently about a nonprofit called MusicBrainz that was owed $20,000 on a late invoice; this invoice had languished unpaid by the customer, Amazon, for three years. That $20,000 amounted to 10% of MusicBrainz’s operating budget. There is no telling what MusicBrainz would’ve been able to do with that $20,000 had they gotten the money sooner.
More cash on-hand, which is the goal of SupplierPay, means small businesses have more financial options and don’t need to borrow as much money. This leads to better balance sheets overall on the supplier side, and helps suppliers remain in business and supplying their products and services which is a net positive for the buyer and for the larger economy .
Will SupplierPay Actually Change Anything?
That remains to be seen. It’s only been about six weeks since President Obama launched the initiative, and its completely voluntary nature means that the large companies who signed onto the pledge don’t have to follow through. This could mean that SupplierPay is nothing more than good PR for the large organizations and for President Obama in particular. The public nature of the pledge, however, does present a good reputation measuring stick. If it comes out that a company who has taken the SupplierPay pledge isn’t paying its small suppliers faster (although I don’t know how it would), then that’s a potential PR blow for that company.
Whether it’s a PR stunt or not, the mere existence of the initiative provides ample business opportunity for companies like Taulia, Ariba, Citibank, Nipendo, and NvoicePay. A key part of the pledge is providing financing options to small suppliers. Nipendo and Ariba both provide business networks, which allow for better invoice processing and smoother payment trajectories; NvoicePay’s ePayments solution helps speed payment processing. Taulia’s partnership with Citibank places them squarely in the ability to offer broad-brush supply chain financing solutions, which means SupplierPay offers them a clear pathway toward business growth as more companies may start looking for financing solutions. Taulia, in point of fact, wrote a blog post praising SupplierPay already.
What’s the End Game?
Whether SupplierPay will amount to anything other than a nice photo opportunity remains to be seen. What’s already true, however, is that faster access to customer payments can lead to more capital expenditures and hiring more workers to expand and fill demand. We’re hopeful that, knowing this, the large companies signing onto SupplierPay make a real effort to actually follow through and bolster relationships with their small-business suppliers.
Check out the rest of the “Best of 2014” Series:
Best of 2014: ePayables 2014: The State of ePayables Technology
Best of 2014: What are Virtual Payment Cards?
Best of 2014: The CFO’s View of Contingent Workforce Management
Best of 2014: AribaPay Looks to Simplify, Improve B2B ePayments
