A new study breaks down the benefits of quicker payments.
Waiting around for clients to pay you can be agonizing—and it’s not doing the labor market any favors either, says a new study.
In fact, quicker payments mean more jobs, an MIT researcher explained in the Houston Chronicle.
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Jean-Noel Barrot of the MIT Sloan School of Management and Ramana Nanda of Harvard Business School studied QuickPay, a program that speeds up payments from the federal government to a group of small business contractors. Payments are made in 15 days instead of 30.
The study found, on average, “each accelerated dollar of payment led to an almost 10-cent increase in payroll, with two-thirds of the increase coming from new hires and the balance from increased earnings per worker,” Barrot wrote. Overall, the QuickPay reform increased annual payroll by $6 billion and brought about the creation of a little more than 75,000 jobs in the three years after it was enacted.
When small businesses are paid quicker, their owners can avoid borrowing money with interest or dipping into personal savings just to pay workers or keep the doors open. Instead, they can increase profitability or expand the business.
“Our research shows that even small improvements in cash collection can have large direct effects on hiring due to the multiplier effect of working capital,” Barrot wrote.
The study also found that QuickPay was most effective in areas where unemployment was high.