Close to 50 percent of small business decision makers have dealt with overdue customer payments in the last year, with the majority reporting a rise in customer excuses for slow payments.
According to the Bibby Small Business Barometer, late payments have significant consequences for small business, with 25 percent experiencing serious cashflow shortages in the last 12 months.
Bibby’s findings are similar to Dunn & Bradstreet’s recent Trade Payment Analysis for the June quarter, which found the number of “severely delinquent” payments (90 day or more overdue) jumped by almost 20 percent compared with the June quarter 2010, which means businesses are waiting for over three months for much needed cash.
The Bibby Barometer found over half of all small businesses offer early settlement discounts to encourage prompt payment. A discount in the range of 1 – 4 percent is most common, but despite the attractive incentive, 30 percent of those that offer discounts find them to be ineffective in encouraging the prompt payment of invoices.
The survey also found 52 percent of small businesses that deal with big companies and government clients are frustrated with slow payments and when feel pessimistic when considering the outlook for payments terms.
“38 per cent of small businesses are expecting the length of time they must wait to be paid to increase further in the coming quarter, which will no doubt place considerable pressure on cash flow management,” Bibby Financial Services Managing Director Greg Charlwood said.
“In addition to slow payment terms, other key challenges identified by small businesses in the months ahead include rising interest rates (30 percent), reduced consumer spending (30 percent), increased staff wages (29 percent) and increasing fuel costs (28 percent). The combinations of these factors suggest tough economic conditions in the future for small businesses,” he said.
Almost half of small businesses surveyed reported that cash flow is now more difficult to manage than 12 months ago.
“Cash flow is considered the main obstacle to expansion by small business decision makers and as a result they are increasingly using debtor finance as one of the most effective ways to increase cash flow,” Charlwood added.
