Small businesses want federal government help with late payments

Many big businesses blame red tape for delaying payments.

Late payments are becoming a problem for many SMEs across Australia, with new research revealing that a significant majority of organisations would like federal government intervention.

A staggering 86 per cent of small businesses believe politicians should do more to tackle the late payments issue, according to a Xero survey, with 79 per cent backing a government-supported policy to prevent invoice settlement delays.

Organisations paid invoices 14.4 days late on average, but this figure climbed to 18.2 days for firms with more than 500 staff.

Xero noted that many small enterprises have 30-days-or-less payment terms, but larger organisations often mandate 60 days, with some refusing to pay until 120 days after receiving an invoice.

Red tape was the biggest reason for delay cited among respondents; 83 per cent of big businesses use the excuse of 'process' for paying suppliers late.

"In our experience, increased regulation and red tape do as much harm as good, particularly when the increased burden on small businesses is taken into account," said Trent Innes, managing director at Xero Australia.

"Rather, we're looking to the government to bring about non-legislative measures that foster and encourage big businesses to do the right thing and pay fairly."

Late payments cause 'domino effect'

The Xero research echoed recent findings from Dun & Bradstreet, which showed the average late payment time increased in the final quarter of 2016, with large businesses the primary culprits.

Organisations paid invoices 14.4 days late on average, but this figure climbed to 18.2 days for firms with more than 500 staff. In the September quarter of 2015, the average late payment time was 13 days.

Xero noted that late payments cause a domino effect for small businesses and the wider economy. Nearly 40 per cent of organisations said delays in settling invoices prevented them from paying their own suppliers, while 15 per cent claimed it created problems for staff wages.

A national inquiry exploring the late payments issue was carried out in 2016, with the Australian Small Business and Family Enterprise Ombudsman recently producing its preliminary findings. Several trends emerged from the results, including the fact that almost one in two small businesses experience late payments on at least 50 per cent of their invoices.

Two thirds of businesses claimed they are owed more than $10,000, while one in 10 owners said they were waiting for late payments of between $100,000 and $500,000. 

Cash flow management and WMC Accounting. Late payments can create cash flow problems for small businesses.

"The conclusions from the payment inquiry will likely act as a catalyst for change, with more big businesses moving away from restrictive payment terms," said Mr Innes.

"We've seen some big businesses improve their payment terms in recent months, however, more still needs to be done."

In the meantime, small enterprises may wish to consider cash management and forecasting to help them improve cash flow.

Please contact WMC Accounting if you'd like to learn more about our comprehensive range of business services.

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