New research by MYOB highlighting the financial and emotional toll late customer payments are having on SME owners has prompted the cloud accounting provider to renew calls for federal government and big business to implement a solution.
The company’s latest SME Snapshot, revealed 77% of business owners had been impacted by late payments. Notably, 35% said their personal finances had taken a hit, 32% reported their ability to cover expenses (e.g. rent and power) had been compromised and 52% indicated heightened stress and anxiety levels.
When asked what they thought the main reasons for late or slow payments were, 52% indicated a lack of regard for invoicing terms and payment processes, followed by almost 46%, who nominated cashflow issues among customers.
Tim Reed, CEO of MYOB, told Dynamic Business that SMEs who can’t afford to lose business are being put in difficult position, with many opting to accommodate late payments.
“When business owners simply accept late payments, they withhold essential operating money as well as funds reserved to invest and grow,” he said. “If businesses are waiting to be paid, it impacts their ability to pay their own bills, creating an unhealthy cash flow cycle in the economy that removes millions of dollars from the system.
“Ultimately, late payment results in poor cash flow. Poor cash flow compromises competitiveness and the ability for a small business to survive. This is important since small businesses play a key role in the Australian economy, accounting for 96 per cent of Australian business.”
Reed said the findings echoed those from last month’s SME Snapshot, which revealed 54% of small businesses have waited over six months to be paid by a customer, with more than seven in ten writing off money owed to them.
“It’s unfortunate that small businesses can be subject to unreasonable business practices, such as 90-day payment terms,” he said.
“The latest SME snapshot indicates that 72% of small business owners are in favour of introducing a voluntary code to encourage big businesses to pay SMEs more promptly. Given the overwhelming support for this initiative, it would be a positive move to see the government and big businesses put forward an initiative to implement a national prompt payment protocol to ensure small businesses are not being delayed payments by other businesses.”
Reed advised small business owners that there were a few effective solutions that may help them to reduce the risk of late payments.
“Business owners should always make sure they do a thorough background check on a business before offering their goods and services,” he said.
“Another effective solution is to offer customers a small percentage discount for early payment of bills as an incentive to pay their bills on time.”
Colin Porter, managing director of credit reporting bureau CreditorWatch warned that late payments can, in extreme cases, lead to the collapse of SMEs.
“Whilst it may not be realistic to think the government would introduce a system to force companies to pay on time, there are however, steps that businesses can take to ensure prompt payment occurs,” he said.
“It’s important to ensure customers receive accurate and timely invoices, statements and reminders when the amount becomes due. For outstanding accounts, be vigilant in chasing payment, as leaving it for several weeks teaches your customers to pay you slower on an ongoing basis. Ultimately the longer credit extensions you provide, the harder it is to get paid.”