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Credit: Behnam Norouzi

Issue of late payment to SMEs back in the spotlight

The topic of inadequate payment processes for Small and Medium-sized Enterprises (SMEs) has once again been brought to attention.

ScotPac, a non-bank business lender in Australia and New Zealand, has supported the call from Bruce Billson, the Australian Small Business and Family Enterprise Ombudsman, for large corporations to improve their payment practices to Small and Medium-sized Enterprises (SMEs). 

The need for quicker and more efficient payment processes has been highlighted as a crucial concern for SMEs in the recent past. Late or slow payments can significantly impact small businesses’ financial stability and growth as they often rely on timely payments to meet their financial obligations and keep their operations running smoothly. 

According to new data from the Payment Times Reporting Regulator, nearly 25 per cent of big businesses take over 120 days to pay their small business customers, with only 30 per cent paying their SME customers within 30 days. 

This data analysed the payment performance of more than 7,000 large corporations, many of which had more than $100 m. The worst-performing sectors were identified as manufacturing, construction, and retail trade. Mr Billson has urged these large businesses to raise their standards and improve their payment times to SMEs.

ScotPac CEO, Jon Sutton, said big businesses were hurting not only SMEs through unreasonable payment delays but also their own customers. “SMEs employ around five million people in Australia,” Mr Sutton said. 

“Because we live in a circular economy, slow payments to SMEs affect the capacity of up to 20 per cent of our population to buy goods and services from big businesses, so there are no winners.”

“Cashflow challenges for SMEs have increased in the past 12 months following the withdrawal of COVID support measures and the recommencement of collection activity by the Australian Tax Office. 

“ScotPac’s most recent SME Growth Index report found a quarter of Australian SMEs added non-bank funding facilities last year. For ScotPac, that translated into a 30 per cent year-on-year rise in invoices funded. 

“Invoice finance is a powerful tool that allows SMEs to unlock working capital tied up in their unpaid invoices instantly. 

“Many of our customers use invoice finance to accelerate growth through acquisitions and asset purchases. Others use it primarily as a cash flow management tool. ‘However, the whole system is reliant on big business debtors paying SMEs within the terms of their agreement, so we back the review of big business payment times to SMEs and look forward to recommendations to improve current practices,” Mr Sutton said.

A Federal Government review into the Payment Times Reporting Act was announced last year, looking at ways to improve payment times and terms for small businesses.

SMEs can have their say on the consultation paper here – submissions close on 1 March 2023.

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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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