41% of USA SMEs unable to pay rent on time or in full - survey

Small business owners in the United States are struggling to pay rent on time due to high inflation, reduced consumer spending, and other economic pressures. All these factors are making it challenging to keep their business alive.

A survey of 6,326 SMEs by the small business network group Alignable highlights that about 41% of SMEs could not pay rent on time or in full for the month of November.

Alignable says this happened during a period when there should have been an increase in revenue and a decline in the rate of rent arrears.

The report also highlights that rent delinquency has increased from 30% in September to 37% in October. In fact, in November, it increased by another four percentage points.

Businesses that couldn’t pay rent include 57% of beauty salons, 46% operating in the education sector, 45% of gyms, 44% of retail, and 44% of restaurants.

SMEs pointed out several economic factors for the delay in paying rent, with 60% of them blaming inflation as the main reason.

About 52% blamed higher rents, while 34% said their monthly revenues have declined to half of the pre-covid level.

Even slower consumer spending is having an effect as 59% stating that customers are purchasing fewer products than they were in prior months.

Ironically, news media WSJ highlights small businesses that received financial aid from government during the pandemic, such as the Federal disaster loans disbursed to four million SMEs, will now have to make repayment as they become due at a time when economic conditions are deteriorating.

A business can fail due to a variety of factors such as lack of planning, low margins, and unskilled management. But the most important factor for failure is poor cash flows, which depends on how you manage your working capital, especially accounts receivable.

Accounts receivable, which is measured in terms of days of sales outstanding (DSO), consists of invoices that have been generated for goods or services that you have previously given to your customer but have not yet been paid.

In the book Let the Cash Flow, RIABU advocates breaking down DSOs into “terms-driven” and “process-driven” components, each of which must be treated differently.

For example, if you have credit terms of 40 days, but your DSO is 50 with a single customer, then 40 days of your DSO is “terms-driven” and 10 days is “process-driven”.

The latter is in your control and your customer should have paid you so that you have a DSO of 40. If you have multiple customers with different terms, then a weighted average measure is required to calculate your terms-driven DSO.

The unpalatable fact is that unless you aggressively manage your receivables, you will find that your business is owing an increasing amount of money.

Get more tips on effective cash flow management from our book, Let the Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com