New data from small business platform Xero has reveals that on average, small businesses in Australia are paid 6.4 days late, costing them $1.1 billion per year as a result.
The Xero Small Business Insights special report Crunch: Cash flow challenges facing small businesses, Part II also found that 48 per cent of invoices issued by Aussie small businesses in 2021 were paid late, with 10 per cent paid more than a month after they were due.
The report notes that those that received the majority (60-80 per cent) of their payments late experienced 17 per cent more cashflow crunches compared with small businesses that were generally paid on time. This is seen as critical as small businesses face sharp increases in rental costs and payroll expenses, which rose nine per cent year-on-year (y/y) and 13 per cent y/y respectively in the last quarter of 2021.
“Late payments create a flow-on effect for small businesses, creating unnecessary accounting complications and threatening ownersʼ ability to meet their own obligations – such as rent or wages – in time,” Rachael Powell, Chief Customer Officer at Xero, said. “While increases in expense costs and seasonal fluctuations in demand are often beyond our control, small businesses and national economies alike can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint.
Joseph Lyons, Managing Director for APAC at Xero pointed out that Aussie small businesses are facing rising expenses amid a sharp uptick in rent, energy, fuel and payroll costs that started last year.
“These pressures are unlikely to subside anytime soon, making cashflow stress one of the big issues for small businesses in the coming months,” Lyons said. “In this climate, it’s more important than ever that we take serious action in cracking down on avoidable late payments and equipping small businesses to build cash reserves for those leaner months.”
The report noted that reducing late payments to affect less than 20 per cent of invoices could reduce negative cashflow months by up to 17 per cent for some businesses. Other recommendations include the adoption of online invoice payment options for faster payment, and businesses working with their accountant or bookkeeper to stay on top of government programs that offer payment plans for relief from rising costs of small business.
“If small businesses and their accounting partners and governments can actively look out for these red flags in their financial data, they’ll find it easier to work together on ways to anticipate cashflow crunches and avoid them with better planning and more timely action,” Powell said.
The new report follows Crunch: Cash flow challenges facing small businesses, Part I, which was released in July.
