Dive Brief:

• More than half of small company CFOs plan to slow pay vendors and 84% are either negotiating their rent payments or plan to withhold rent entirely for April and May, a Gartner survey conducted last week found.

• “Slow paying a vendor means delaying disbursement of payment for services already rendered,” Alexander Bant, vice president of research at Gartner’s Finance Practice, told CFO Dive. “If a contractor completed work in February, and was due to be paid for that work at the end of March, slow pay would mean extending payment terms by 30 to 90 more days.” 

• The popularity of slow pay puts smaller vendors, especially independent contractors, in a tough position, because they may not have cash to cover that extra time, Bant said.

Dive Insight:

Gartner conducted the survey last Monday among 192 CFOs and finance executives. Small business CFOs, whose companies have revenue under $500 million, are also pursuing flexibility in their rental payments strategy. More than 80% are seeking some level of adjustment to their rent obligations.

“I think many vendors and contractors believed this would happen,” Bant said of CFOs' aggressiveness on pushing against rent obligations. “The data validates that many organizations are delaying their payments.”

CFOs at large firms, by contrast, have more options: 57% of CFOs with access to credit lines are drawing down on them, and nine times as many large-firm CFOs as those from small companies expect to use asset sales to improve liquidity. 

“The COVID-19 crisis is exposing the fault lines between larger, better-capitalized companies, which have more operational flexibility, and smaller firms under more stress,” Bant said.

Indeed, small organization CFOs were nearly twice as likely to be withholding rent for April and May as were large firms. 

“I think companies with a larger real estate footprint can probably work with lenders and landlords to negotiate different terms,” Bant noted. “I think the most extreme solution among the CFO cohort would be providing zero payment. Their general sentiment is, ‘I’m doing all I can to work with my lender to make partial payments, or wait for more guidance.’”

Bant said Gartner heard from several CFOs who were waiting for lenders to give official guidance on April payments; some lenders advised against making payments until they knew what April, May and June may look like. 

Bant pointed to one caveat in the data: at the beginning of the poll, Gartner asked respondents if their company revenue was being positively or negatively impacted, or revenue unchanged, by the pandemic. Then, they proceeded to strip out from the data set anyone reporting a positive benefit.