Cashflow crisis: Over half of small business invoices are paid late

By Katherine O'Chee ·

Small businesses are bearing the brunt of big firms’ tardiness, with new research showing 53% of their invoices aren’t being paid on time. 

NAB’s ‘Supporting Economic Recovery’ report released today reveals that large companies are clocking up a total of $115 billion in late payments to small businesses annually. 

And those delays are effectively denying small businesses a whopping $7 billion in working capital every year. 

NAB said the federal government’s Payments Time Reporting Bill 2020 is a step in the right direction, as it helps keep big businesses accountable. Under this bill, firms earning over $100 million a year are required to report on how and when they pay their small business suppliers. 

The Business Council of Australia also launched an Australian Supplier Payment Code back in 2017. This is a voluntary initiative, where those who sign up are committed to paying small business suppliers on time and within 30 days

But these reforms alone may not be enough.

Late payments stress on the rise 

The latest MYOB Business Monitor also released today found 38% of small to medium-sized enterprises (SMEs) feel financially stressed due to late payments, while 42% are worried about cashflow. 

In fact, the number of SMEs struggling with those pressures has only increased in the last six months. Concerns around cashflow and late payments rose by 12% and 7%, respectively. 

The bi-annual report was based on surveys with over 1,000 Australian SME owners and managers. 

MYOB’s chief executive, Greg Ellis said the solution is to mandate electronic invoicing (e-invoicing). This is a system that automates the exchange of invoices between a supplier and customer’s accounting systems, eliminating physical paperwork. 

“E-Invoicing will help businesses get paid faster, which is going to be key in the recovery for small businesses coming out of this pandemic,” he said.

Invoice financing could be another good way to free up capital while small businesses wait on customer payments. This is a loan secured against outstanding invoices, and it allows SMEs to receive a percentage of the invoice amount upfront (usually up to 95%), then the rest once they’ve been paid - minus any fees or charges.

Business funding also a barrier 

However, late payments aren’t the only cashflow issue that small businesses face. 

NAB’s report also found 1 in 3 new enterprises see funding as their biggest challenge, while 1 in 5 small businesses have trouble accessing finance.

According to the big bank, that’s because small businesses often suffer from slower approval speeds and higher loan costs, due to their lack of financial history, collateral and confidence. 

NAB said that with open banking currently live, small businesses could instruct their business banking provider to share data with third parties in order to snag a better deal. 

Right now, getting hold of extra finance should also be easier, thanks to the government’s SME Loan Guarantee Scheme. Under this scheme, the government guarantees half of all unsecured business loans of up to $250,000 issued by eligible lenders, until 30 September 2020.

Customer focus? Looking ahead 

So what are SMEs looking to spend that extra finance on? 

The latest MYOB Business Monitor reveals that small businesses are likely to invest less in marketing in the next 12 months, and put more focus on engaging existing customers. 

There will be 24% more investment in customer retention strategies since December last year, and 1 in 5 SMEs are looking to widen the variety of goods and services they’re offering. 

Expansion into eCommerce - selling products online - will also be high on the priority list for SMEs, with business investment in this area sitting at 26% for the 20-21 financial year. 

“With the implementation of social distancing requirements and business hibernation measures, online retail and eCommerce opportunities have become even more critical to business survival,” Ellis said.

Whether it’s to improve your business’s digital capabilities or to broaden your product offering, you may be in need of a cashflow boost. Get started with a few financing deals below, or jump on over to our business loans comparison table for even more options. 

Page last updated October 24, 2020

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Katherine O'Chee
Katherine O'Chee
Money writer

Katherine O’Chee is Mozo’s international money transfer and forex expert and business banking writer. She keeps Mozo’s readers on top of the latest news and writes in-depth features to inform and help Australians make smarter financial decisions. Her work has been published in major media outlets including Sydney Morning Herald, SBS News and Bangkok Post. She has a Bachelor of Arts (Media and Communications) from the University of Sydney.