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SMEs are battling with month-long payment delays

New research shows that nearly one in every four large enterprises takes more than 120 days to pay their invoices, leaving small business suppliers empty-handed. 

According to the Payment Times Reporting Regulator, the Business Council has a 30-day payment goal, but seven out of ten large enterprises fail to reach it. According to the research, large manufacturing, retail commerce, and construction corporations were the worst offenders. 

Only approximately 14 per cent pay their vendors within 30 days. Suppliers are, by definition, small businesses. Public administration and safety are the most dependable industries, with 54% of invoices paid on time.

“This data reveals an appalling story of big businesses really treating their small business suppliers in a shabby way and really delaying payment when we know cash flow is the lifeblood of so many small and family businesses,” Australian Small Business and Family Enterprise Ombudsman Bruce Billson said.

“Small businesses can’t avoid the demands on their cash. So, you’ll often see a number of them having overdrafts, working capital, or, as the Reserve Bank has revealed, in 2022, more and more small businesses tapping their own financial resources to meet the obligations of the business. 

“What we’re saying is that excellent business pays.” This is a critical business partnership. Unfortunately, I believe some of the larger corporations do this because they can live in an ideal society. The cost of funding would be lower for larger businesses than for small businesses. 

“As a result, small firms would add a little extra to their invoice to compensate for the fact that they are cash-strapped while huge enterprises profit. That, we know, does not happen. We all know that a small business can accept terms and prices from a larger business. 

“And here, even with the goal of paying a fairly standard performance rate of 30 days, which is the target that has been set by the Business Council of Australia, only two-thirds of big businesses adopt that fairly ordinary standard to pay within 30 days.

“During COVID, we saw some of Australia’s largest businesses get organised and, in some cases, pay small and Indigenous enterprises in just a few days. The government has made pledges around payment timelines or, you know, pay within the stipulated period or pay interest, which is what many small business suppliers to the Commonwealth must do.

“So it is feasible. I mean, there are systems like eInvoicing that make it easier to deliver timely payment times. This appears to be a matter of attitude and appetite. This is where I urge large businesses to take action and protect their important partners, their small business suppliers.”

A breakdown of payment times shows:

23% of big businesses take more than 120 days to pay their small business suppliers

  • 9% take between 61 and 90 days to pay
  • 37% take between 31 and 60 days to pay
  • 18% take between 21 and 30 days to pay
  • 13% pay their bills in fewer than 20 days.

According to the data reported to the regulator, the worst performers were big businesses in manufacturing, retail trade and construction.

  • Only 14% of manufacturing businesses paid their small business suppliers within 30 days.
  • Only 22% of big businesses in retail trade paid small businesses within 30 days. This was also the construction case.
  • The best performers were big businesses operating in public administration and safety, but it was still, only just over half (54%) of small business invoices paid within 30 days.
  • The next best was accommodation and food services, where 49% of small businesses were paid within 30 days.

“And we’re seeing an increasing number of Commonwealth organisations and departments use eInvoicing to make that happen more quickly. As a result, governments have been doing a lot of the right things. It doesn’t always go as planned.

New rules to curb late payment

The federal government has unveiled a new policy to address the problem of late payments faced by small businesses. The new policy aims to reduce payment times for businesses with government supply chain contracts and encourage ethical payment practices.

The new Payment Times Procurement Connected Policy ­– which goes into effect in October this year — requires businesses with an annual income of more than $100 million that are awarded government contracts worth more than $4 million to pay suppliers’ bills (up to $1 million) within 20 calendar days.

Scottish Pacific, a large independent finance provider, estimated that the cost of delayed payments in 2019 was around $234.6 billion in lost revenue. That is, SMEs would have generated more revenue if cash flow was improved, as late payments accounted for a 43% downturn in cash flow.

2019 report from Xero, the global small business platform, revealed for the first time the magnitude and impact of late payments to Australian small businesses, putting the value of outstanding late payments at $115 billion a year.

The research found that half of all trade credit invoices were paid late, and solving it would see small and medium businesses benefit by $4.38 billion over ten years.

Payment times reporting scheme

Within the scope of the policy, large businesses will also be required to report their payment terms and practices under the Payment Times Reporting Scheme to increase the transparency of payment times from large to small suppliers.

The scheme aims to:

  • Increase transparency around large businesses’ payment performance
  • Help small businesses decide whom to do business with
  • Create incentives for improved payment times and practices
  • Help the public make decisions about the large businesses they buy from

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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