For Small Business, a Cash-Flow Crisis

For Small Business, a Cash-Flow Crisis

More companies are getting squeezed between late payers and tighter credit terms

Custom cabinet seller M&J Kitchens survived the recession even though its revenue from homeowners and builders fell by more than half in 2009. Then, last August, with sales tracking 42 percent higher than a year earlier, owner Drew Davies shut the East Greenwich (R.I.) company after 26 years, unable to pay his bills. M&J was a casualty of a cash-flow crisis precipitated by his bank and suppliers that, Davies says, cut off credit lines that had been in place for decades.

Small businesses face what could be a permanent legacy of the recession: Their vendors are demanding faster payment even as their customers take longer to pay. That means companies with the least clout get squeezed the hardest. "The slowdown of currency, of money, the exchange, put us in a very precarious position," says Davies. "We basically had panic from our vendors."

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