Illinois vendors finally receive payment – but not from the state

by Ben VanMetre Illinois is notorious for not paying its bills on time. Thousands of businesses, contractors and nonprofits choose to do business with the state of Illinois each year, providing everything from charity work to medical services to office supplies. These organizations are the state’s vendors. The problem is Illinois doesn’t pay these vendors...

by Ben VanMetre

Illinois is notorious for not paying its bills on time.

Thousands of businesses, contractors and nonprofits choose to do business with the state of Illinois each year, providing everything from charity work to medical services to office supplies. These organizations are the state’s vendors.

The problem is Illinois doesn’t pay these vendors when it receives their goods and services – instead the state makes them wait months before actually paying its tab.

These waiting periods can exceed six months and have forced vendors to lay off workers, cut costs and even close their doors altogether. It’s difficult to run a business when your customers don’t pay for the services you provide.

Nobody likes seeing businesses and nonprofits in Illinois shut their doors due to the state’s fiscal irresponsibility. And taxpayers suffer too, because it’s their money that funds penalties on late payments when the state can pay its bills on time.

That’s why the private sector has stepped in and started advancing money to Illinois’ vendors waiting for payment.

Vendor Assistance Program LLC buys the invoices (unpaid bills) from the vendors and collects the interest penalties until the state finally pays the invoice. This is a mutually beneficial relationship between vendors and the company – Illinois’ vendors are paid sooner and Vendor Assistance Program makes money on fees from the state’s late payments.

Here’s how it works:

Illinois is required by law to pay interest of 1 percent a month on most invoices more than 90 days old. At that point, vendors are eligible to sell their invoices to Vendor Assistance Program or other state-approved lenders. The vendor is paid 90 cents on the dollar upfront, eventually getting back the remaining 10 percent in two installments while Vendor Assistance Program collects the interest penalties. The 14-employee company, whose no-frills office is in the Pilsen neighborhood, makes money by keeping expenses low and borrowing money at rates less than the state’s 1 percent a month interest payments.

David Reape, CEO of Vendor Assistance Program, said, “To have a vendor call and say we made their Christmas, that we helped them survive, that’s what this program is all about … It’s about helping the little guys and, as it turns out, some of the bigger guys.”

Vendor Assistance Program has advanced $52 million to about 120 vendors since December and plans to advance another $50 million to vendors by the end of May. The venture expects to be advancing as much as $100 million a month to vendors by the end of the year.

Ultimately, Illinois’ mountain of unpaid bills and millions in annual late payments created a market and an opportunity for the private sector to improve the situation and help vendors struggling to stay afloat due to the state’s fiscal irresponsibility.

The only downside is that taxpayers are still losing. As Crain’s Chicago Business reported:

It doesn’t reduce the added cost of late payments to the state: more than $256.6 million over the last five years. It merely shifts those interest penalties—and the risk of late payments—to a third party.

Illinois taxpayers are already tapped out, suffering from the record income tax hike of 2011, the second highest property taxes in the nation and the fourth- highest corporate income tax in the industrialized world. It’s simply unacceptable for political leadership to continue Illinois’ upward trend of more spending and higher taxes – only to help support late fees and interest payments on the unpaid bills that result from this big-government model.