According to the latest research data from Illion, Australia’s late payments are at a historic low, with an average of 10.4 days late. This means that, at the best we’ve ever been, Australian businesses are still receiving their payments almost 11 days overdue. And that’s on top of their already existing payment terms. Think about it. If you’re on 30-day terms that means on average more than a full third longer.
A KNOCK-ON EFFECT
It is estimated that 90% of small businesses are failing due to cash flow problems, with Australian Small Business and Family Enterprise Ombudsman Kate Carnell citing that 57% of businesses are using credit cards to try and offset late payments.
In her report last year, Carnell said that SMEs did not have the resources to spend time chasing down payments from larger businesses, almost half of whom are owed more than $20,000 in late payments from customers, and more than 14% are owed more than $100,000.
It’s worth noting that 87.5% of business owners spend less than 5 hours a week chasing down payments they’re owed, due mainly to the practicalities of running their businesses, and this has led to them being treated like cheap lines of credit by their larger customers.
The disruption that this can have on their cash flow may have damaging effects, especially to businesses experiencing strong growth periods. It can also prevent them from paying their suppliers on time, costing them money and preventing them from taking advantage of early payment discounts that may be offered.
WHAT CAN SMEs DO ABOUT IT?
Business owners can be reluctant to chase larger customers, not just because they lack the time to do so, but because they fear it can have a negative impact on their business and jeopardise their working relationships with these companies, impacting their ability to get future work. This makes them hesitant to issue letters of demand, engage debt collection agencies or begin legal proceedings.
Invoice finance can be a practical solution to cash flow problems, allowing you to fund your invoices, effectively having them paid today rather than on their payment terms. A detailed write up on how it works can be found here.
While Illion’s latest figures do give Australian business owners hope for the future, and currently show a decreasing trend in late payment terms, businesses still have gaps to cover in the meantime. If you’d like to find out more about using invoice finance to cover your gaps, get in touch with Growth Manager David Webster at firstname.lastname@example.org.