Australian SMEs suffer from systemic late payments - to the tune of $115bn

Australian small and medium enterprises (SMEs) are continuing to pay a high price through the widespread late payment of invoices with over half of all trade credit invoices being paid late, according to a new report.

Higher borrowings, increased administrative and collection costs and slower growth are just some of the impacts imposed on SMEs by big businesses paying Australian small businesses late, based on the report and data provided by Xero Small Business Insights.

$115 billion in late payments each year to Australian SMEs were identified with over half (53 per cent) of all trade credit invoices to SMEs being paid an average 23 days after they are due.

Ezidebit Managing Director Australia and New Zealand Mark Healy said: “Solving the late payment headaches for SMEs is vital in ensuring the success of this extremely important sector in the Australian economy.

“This systemic problem equates to about $52,000 for every small business in Australia. If these invoices were paid on time it would have the effect of about $7 billion in working capital being transferred to small businesses.

“Importantly, this would be used by SMEs to reduce debt and for increased investment in their business.”

Late Payments Impacting on Business Growth

The report, which analysed more than 10 million invoices issued by over 150,000 SMEs, showed there was a direct correlation between payment time length and revenue growth.

Those SMEs paid slower than average have about a third lower revenue growth than those paid more quickly. Critically, these business owners lack the confidence to invest in their business to generate growth.

A knock-on effect is that these SMEs in turn pay their own suppliers eight days later than those paid faster than average.

Mr Healy said that cash flow is the lifeblood of SMEs and that utilising a payments provider like Ezidebit was one way of helping secure payments from customers and freeing up business owners to concentrate on growing their businesses.

“The Xero report shows that if all these invoices were paid on time that would see SMEs benefit by $4.38 billion over 10 years,” Mr Healy said.

“The benefit to these businesses and the economy in general would be considerable.”

Case Study - Kirilly Dutton - Camelia Avenue Childcare:

“As the business grew, we started to notice a pattern where families’ payments where coming in late, and it was taking a lot of time to chase them up. The immediate advantage I noticed when we introduced direct debit (from Ezidebit) was the improvement to our cash flow. The funds are direct debited from their accounts on a certain day, so I know what to expect each week. This allows me to manage wages, maintenance costs - all those sorts of things. It’s a no brainer, really.”

Government Pressure on Late Payments

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has been lobbying the Australian government to increase pressure on large businesses and to implement a reporting framework for the country’s top 3,000 big businesses to publish payment information annually.

A report earlier this year from ASBFEO found that it takes on average 36.7 days for small businesses to get paid by big firms, with the construction, mining and retail industries emerging as poor performers.

Small business ombudsman Kate Carnell said the figure from Xero matches her office’s findings with late payment times being the second biggest issue for Australian SMEs after access to capital.

Ezidebit’s Mark Healy said that utilising a payments provider to offer a complete payments solution including multiple ways to get paid was one of the simplest ways to save time, maintain control and improve cash flow.