Are late payments crippling your business?

Small and medium-sized enterprises (SMEs) rely on steady cashflow to ensure they stay afloat, which means late payments can place significant strain on their operations, particularly if the culprit is a major client or customer.

Recent statistics from Dun & Bradstreet showed the number of business failures jumped 11 per cent in the third quarter of this year, when compared with the same three-month period in 2015.

Accounting software firm MYOB revealed in October that 77 per cent of SMEs reported a negative impact on their business when customers failed to pay on time. This ranged from affecting the owner's personal finances (35 per cent) to an inability to cover crucial costs such as energy bills or rent.

Late payment stress

More than half of small business directors said late payments had caused them stress or anxiety. MYOB CEO Tim Reed said any delays on settling invoices are unfair considering the challenges that SMEs typically face everyday anyway.

"The financial health of Australia's small business owners should be a top priority and the research indicates this also has a direct impact to their own personal wellbeing," he explained.

The Council of Small Business Australia (COSBOA) has called for the development of a national protocol to which organisations can voluntarily sign up to indicate they will make prompt payments.

"Some big businesses are taking more than 90 days to pay an SME despite agreed payment terms being 30 days – and this can be the difference between insolvency and a healthy business continuing to operate," said COSBOA CEO Peter Strong.

Ombudsman inquiry imminent

However, help could be on the horizon for SMEs struggling under the weight of unpaid invoices. The Australian Small Business and Family Enterprise Ombudsman has launched an inquiry into payment times and practices that could see more pressure being placed on larger organisations to settle their debts quickly.

The organisation is keen to explore the impact of late payments on SMEs in order to develop easily implementable solutions to resolve the problem. It's likely a new approach can't come quickly enough for the country's small businesses, with MarketInvoice data showing Australian companies are among the worst in the world at paying invoices promptly.

The figures showed Australia's enterprises pay invoices 26.4 days overdue on average, notably higher than the next slowest-paying country, which was Mexico at 18.6 days.

If you're struggling with cashflow problems, please contact WMC Accounting and our team will help you build a plan of action.