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SMEs paying invoices issued by other SMEs two weeks after settling debts with corporates

SMEs are far more punctual in paying invoices issued by corporates than those issues by other SMEs, a leading commercial credit reporting bureau has revealed.

The latest quarterly risk review of CreditorWatch – an analysis of payment data sourced from over 40,000 active customers – shows SMES take, on average, nearly two weeks longer to pay an invoice issued by another SME than one issued by a corporate (56.1 days vs 43 days). Furthermore, corporates are taking slightly longer to pay SMEs than they are to pay other corporates (50.2 days vs 52.4 days).

The bureau explained that SMEs are generally slower to pay each other due to the fact that corporates are often classified as ‘critical suppliers’ and, unlike SMEs, tend to have departments and employees dedicated to credit management, debt collection and legal advice.

Founder and managing director at CreditorWatch, Colin Porter believes SMEs can reduce the time it takes to get paid by other SMEs by simply following best practice credit management procedures.

“Performing credit checks and monitoring existing customers will help any business to immediately address changes that could impact a debtor’s ability to pay on time,” he said.  

Payment defaults on the rise

The review also reveals payment defaults amongst all businesses rose significantly in quarters two (90%) and three (63%) of 2016, when a comparison is made with the same quarters a year earlier.

“The rise in payment defaults in the last two quarters is likely an early warning to expect court actions o increase in Q4 2016 and Q1 2017 as suppliers will register defaults before taking debtors to court,” the bureau stated.

Whereas court action over payment defaults generally declined in Queensland, NSW, South Australia and Victoria between Q3 2015 and Q3 2016, the number of legal proceedings in Western Australia increased significantly over the same period.

“The results, coupled with the high volume of national payment defaults, ultimately reflects a need for greater caution to be taken when trading and providing credit in Western Australia,” the Bureau noted.

Cash flow still the leading concern for small businesses

The review also included a survey of 1126 members to reveal small business sentiment for the coming year. Key findings included:

  • Cash flow and the Australian economy are still leading concerns for Australian businesses with nearly two thirds of respondents citing these reasons ahead of profitability, government regulations and taxation.
  • No significant growth is intended with almost half of respondents (48%) citing no plans to employ more staff in the next 3-6 months.
  • Revenue growth appears to be levelled.
  • Growing optimism amongst businesses as 42% expect to make more profit than the previous year.
  • Taking on new customers is mostly perceived as an average risk amongst respondents (47%)
  • Over half of respondents (54%) claim they feel confident of their trading decisions as a result of performing regular credit checks

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James Harkness

James Harkness

James Harnkess previous editor at Dynamic Business

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