Jeff Clemishaw for Gateway Commercial Finance
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Minimum wage increased in 19 states in 2026. Here’s how businesses can protect their cash flow
January marked a change in payroll across the United States. Nineteen states increased their minimum wage on the first of the year, and three more are expected to see increases later in the year.
While higher wages are an exciting change for workers, they can be a financial burden for businesses. Many vendors decide to raise the cost of their goods and services to offset increased labor expenses. B2B companies can feel the pressure the most because they largely rely on annual contract renewals, and customers may look elsewhere when their contracts become more expensive. Gateway Commercial Finance, an invoice factoring company, discusses how minimum wage increases affect businesses and what B2B companies can do to preserve their accounts receivable balance sheets.
2026 minimum wage changes and how they affect business
The concept of a minimum wage was first introduced to the United States in 1938, under the Fair Labor Standards Act, as noted by the Economic Policy Institute. The purpose was to set a wage floor that ensured workers were compensated enough to meet basic living standards.
Minimum wage increases are common. They’re enacted to address changing economic conditions like labor market dynamics and consumer purchasing power, according to the American Institute for Economic Research.
19 states increased minimum wage this year, with more to come
Under the FLSA, states were given the right to set minimum wages higher than the federal level to account for higher regional costs of living. Since the introduction of this act, states have consistently increased their minimum wages to meet the needs of a changing economy.
On Jan. 1, 2026, 19 states across the U.S. raised their minimum wage:
- Arizona: $15.15
- California: $16.90
- Colorado: $15.16
- Connecticut: $16.94
- Hawaii: $16
- Maine: $15.10
- Michigan: $13.73
- Minnesota: $11.41
- Missouri: $15
- Montana: $10.85
- Nebraska: $15
- New Jersey: $15.92
- New York: $16 for Long Island, Westchester, and the rest of the state, $17.00 for New York City
- Ohio: $11
- Rhode Island: $16
- South Dakota: $11.85
- Vermont: $14.42
- Virginia: $12.77
- Washington State: $17.13
Later in the year, Alaska is expected to increase its rate to $14, Florida to $15, and Oregon to between $14.05 and $16.30, depending on area classification (urban, standard, or nonurban).
How businesses are affected by minimum wage increases
A boost in minimum wages may mean more spending power for workers, but it also puts a strain on businesses. A 2024 study by the University of Michigan and Carnegie Mellon University found that, as a result, firms reduce the number of part-time positions. Small businesses pass the additional expense directly to consumers, via the cost of products and services.
The impact is felt particularly strongly for businesses in the B2B sector. Increases to minimum wage have a direct impact on payroll. And just like small businesses, B2B companies pass the additional labor costs from minimum wage hikes onto their customers.
The main issue is that B2B businesses often provide their services and goods through annual contracts. When minimum wages are increased, contracts get more expensive. No Smoke and Mirrors mentions that this comes at a risk. B2B customers have tight margins, and they expect consistency from their vendors. Price increases could damage relationships or cause customers to look elsewhere.
The hidden damage to accounts receivable
It’s never easy for a B2B business to secure on-time contract payments. The 2025 Atradius Payment Practices Barometer found that 55% of all B2B invoices are overdue. In their 2025 State of B2B Payment Report, Upflow found that many industries report extremely high Days Sales Outstanding, a metric that shows how long it takes a customer to pay. Office and facilities management businesses, for example, report an average wait of 105 days to get paid, and manufacturing and supply chain businesses report a wait of 57 days.
High DSOs are detrimental to a business’s accounts receivable sheet. Unpredictable payment schedules disrupt cash flow, making it harder for a business to meet daily operating expenses and invest in new opportunities. Resolve Pay found that a DSO increase of just 10 days can reduce cash reserves by 15%. As a result, some companies end up relying on external financing.
When contracts become more expensive due to higher labor costs, the client’s cash flow can be hurt as well. They may be more likely to withhold payment to finance other operating expenses. Too many late invoices can seriously damage a B2B company’s financial health.
Case study #1: B2B service-based businesses
The way accounts receivable slowdowns play out varies by industry. B2B SaaS companies, for example, are heavily reliant on contract renewals and customer retention. They deal with variable contract lengths and payment terms, so it can be challenging to secure on-time invoices. For example, a project management software company might have basic, business, and enterprise accounts, each billed at different rates and intervals.
There are multiple strategies that service-based businesses can take to ensure more timely payment. As outlined by Younium, these can include:
- Using accounts receivable management software to track invoices, payments, and forecasted revenue.
- Implementing automatic contract payments to generate repeatable, consistent income.
- Setting clear, standard payment terms for all accounts.
- Enforcing late invoices with account lockouts.
Case study #2: B2B product-based businesses
Product-based businesses, such as manufacturers and distributors, operate under different billing models. However, the issue of late invoices and delayed accounts receivable collections still applies. In a product- or goods-based business, the money to produce those goods has already been spent by the time it’s delivered to the customer. Therefore, a company must secure an on-time payment.
This can be easier said than done, especially with the rising labor costs associated with minimum wage hikes. Consider a food distribution business. A restaurant can have the same invoice list it has always had, but suddenly they must pay more. This causes hesitation in low-margin industries, resulting in delayed payments.
Pricefx offers a few suggestions for how B2B product businesses can ease this transition:
- Add value: Consider making goods and services more desirable. Offer faster delivery times, larger return windows, and better customer support.
- Use consistent pricing increases: Pricefx warns that customers in an industry talk to each other. If one business gets a more favorable price increase than another, a supplier’s reputation can be hurt.
- Offer alternative pricing: If a customer is having difficulty paying on time, offer lower rates for reduced services, such as slower delivery times.
Communication is key: How to successfully renew contracts
One common theme with experts’ recommendations on contract renewal is communication. The less surprised a customer is by higher prices, the less likely they will be to refuse payment, cancel the contract, or find another provider.
Be honest and upfront with customers. Give them advance notice if rates are going to increase. This gives them the space to choose an alternative supplier if needed. Itemize expenses and explain why rates are higher. Transparency can go a long way.
Reduce accounts receivable slowdown with contractual clauses: 5 examples
Contractual clauses are one of the most effective ways of establishing clear communication. They set clear, legal expectations for payment, price increases, and other circumstances that may cause customer pushback. When everyone is on the same page, there are no surprises that strain business relationships.
1. Annual price adjustments based on labor cost
Price increases can be embedded directly into the contract. A price adjustment clause allows a B2B company to increase the cost of its goods and services due to external factors like inflation, policy changes, tariffs, and labor costs.
2. Cost index price escalation
Price escalation clauses are particularly useful for B2B manufacturers that ship goods. This clause allows a company to raise its prices if the cost of manufacturing raw goods increases dramatically. This prevents revenue loss during supply chain disruptions.
3. Disputed invoice processes
Sometimes, contract disputes are inevitable. A client may object to a price increase even when there is a price escalation clause. Outlining a disputed invoice process sets expectations early and provides a legal pathway for dispute resolution.
A key part of many disputed invoice clauses is the requirement that payments are still made while the situation is being negotiated. This ensures that there is no accounts receivable slowdown for the B2B supplier.
4. Auto-adjustment contract renewals
Automatic price change clauses are very popular with B2B suppliers because the price of goods is often linked to external factors. Including this in a contract can secure automatic renewals even with price changes. Customers agree ahead of time that reasonable price increases are expected due to changing market variables.
5. Force majeure
A force majeure clause builds trust between a B2B company and its customer. This clause provides a legal out in the case of “acts of God,” as described by Cornell Law School. Natural disasters and labor disputes are typically covered under this provision.
Strategies for dealing with client pushback
Customer pushback should always be expected and planned for. No matter what a business does to keep its customers happy, there will always be incidents that it needs to respond to. Knowing how to communicate effectively and navigate these conflicts is an essential skill for B2B companies renewing higher contracts.
According to InvoiceQuick, some strategies include giving customers a 60- or 90-day notice, offering grace windows or price locks to ease the burden, and displaying confidence in the business’s decision.
Price increase letter suggestions
A well-crafted price increase letter can maintain business relationships. Shopify gives a breakdown on what B2B companies should include:
- Provide plenty of advance notice.
- State the purpose of the letter immediately.
- Justify the higher prices.
- Communicate all relevant details clearly.
- Express gratitude and reflect on the business relationship.
- Provide a direct point of contact for customers who have questions.
30-day plan for renewing contracts at higher rates
Minimum wage increases can take B2B companies by surprise, forcing many to scramble to rewrite their annual contracts. Developing a 30-day plan can be beneficial for remaining organized and decisive.
Week 1: Assessment
Businesses should take time to learn about expected changes to labor costs and understand what future changes are expected. From here, they can calculate their new costs and make price changes that adequately reflect them.
Week 2: Documentation
Customers will appreciate clear information on how labor costs affect rates. During Week 2, businesses should begin documenting their additional expenses to justify contract hikes.
Week 3: Internal alignment
At week 3, internal processes should be developed and refined. Invoice management software can be updated with new information, contract clauses can be developed, and sales teams can be trained to handle customer reactions.
Week 4: Customer communication
At the end of the month, customers can be notified. A clear contract will be in place, outlining pricing expectations and what the relationship will look like moving forward.
Communication, contract clauses, and planning will preserve cash flow
Increases to state minimum wages can create uncertainty for B2B organizations that rely on annual contracts as a bulk of their revenue. When customers are blindsided by unexpected, higher costs, contract renewal can be a challenge.
Communicating clearly with customers, establishing contract clauses for rate increases, and establishing company-wide business plans are all essential for a smooth transition. Ultimately, these strategies will help businesses retain contracts and protect their accounts receivable cash flow, even when facing higher labor costs.
This story was produced by Gateway Commercial Finance and reviewed and distributed by Stacker.
