Late payment of invoices by big business is a widespread scourge that is holding back the growth and productivity of many small businesses in Australia, says Greg Charlwood, managing director of Australian Invoice Finance.
Late payment of invoices by big business is a widespread scourge that is holding back the growth and productivity of many small businesses in Australia.
The sector is in desperate need of action to stop large companies using SMEs like a bank. At the same time, this presents a new revenue stream for brokers wanting to help their SME clients overcome cash flow problems arising from late payments.
Late payments cause a world of hurt for small businesses. They create uneven cash flow (which affects the ability to pay regular outgoings, such as utilities bills and staff payments), can lead to missed business opportunities, and can cause businesses to fall behind in tax payments. In extreme cases, it can force businesses to shut down entirely. It is particularly problematic for sole traders, who don’t have the human resources to chase late payments.
Perhaps surprisingly, it is big businesses that are the worst offenders.
Data from international research company illion revealed that for the 2019 March quarter, Australian companies with 500+ employees had an average late payment time of 14 days – that’s six weeks after the invoice was sent.
Companies with 200-499 employees were the next worst, with an average late payment time of 11.5 days. This compared to 8.6 days for companies with six-19 employees.
Research from accounting software Xero, which analysed more than 10 million invoices from over 150,000 Australian businesses, showed that from July 2017 to July 2018 an estimated 53 per cent of invoices, worth $115 billion, were not paid on time by big businesses. Xero estimated that an additional $7 billion of working capital would have been generated by small businesses if those late payments were made on time. There is clearly a flow-on effect from late payments that impacts the entire economy.
Australian businesses are becoming better at paying on time, and late payment periods are coming down, but there is still a cultural problem in many large companies that perpetuates late payments.
The good news is that the federal government appears to be working to rectify the problem.
In November last year, the Minister for Small and Family Business, Skills and Vocational Education, Michaelia Cash, directed the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, to review payment times and investigate the effects of late payments on small businesses.
This review was much needed. As Ms Carnell said when launching the review: “Poor cash flow is the primary reason for insolvency in Australia.”
The ASBFEO released a report of its review in March, which noted a lack of transparency from large corporations around payment terms and how they are met.
Many had the gall to say that revealing their payment terms, times and practices would make them less competitive.
Ms Carnell used the report to call for “a public register of payment terms and the performance against same”.
Invoice finance offers an ideal solution for brokers’ SME clients needing to smooth out uneven cash flow. With up to 90 per cent of invoices financed within 24 hours, an invoice finance facility allows small-business operators to focus on what is important – running their businesses.
Greg has been in the invoice financing industry for more than 30 years and is very knowledgeable about the challenges small businesses face. Greg founded and was head of two of Australia’s major invoice finance businesses. For nearly 10 years he was on the international board of Bibby Financial Services and was CEO of the group’s Asian and Australasian businesses. Greg has twice been chairman of the Debtor and Invoice Finance Association of Australia and New Zealand and is a past director of the Turnaround Management Association of Australia.
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