Small businesses lost an average of $15,257 last financial year due to late payments, according to Xero. Now Payday Super is coming and late payments could force them to miss the deadline.
What’s happening: New research from Xero, based on a survey of 500 employing Australian small businesses, has found that 84 per cent of small business owners say late customer payments could prevent them from meeting Payday Super compliance obligations.
Why this matters: Small businesses broadly support Payday Super as a positive change for employees, with 91 per cent backing the reform. But the cash flow mechanics of making it work are creating serious operational pressure, with late payments, rising costs and tighter margins converging at exactly the wrong moment.
Australia’s small businesses want to do the right thing by their employees. When it comes to Payday Super, 91 per cent say they support the reform. The problem is not the policy. It is the plumbing.
New research from Xero, based on a survey of 500 employing Australian small businesses, reveals that the biggest threat to Payday Super compliance is not reluctance or ignorance. It is late payments from customers making it structurally difficult for small businesses to have the cash on hand when they need it.
Eighty four per cent of small business owners say delayed customer payments could force them to miss Payday Super deadlines, according to Xero. And the scale of the late payment problem gives that finding real weight. Small businesses lost an average of $15,257 over the last financial year due to late payments from customers, according to the same research.
The compliance crisis hiding in cash flow
Payday Super, which comes into effect on 1 July 2026, requires employers to pay superannuation contributions at the same time as wages rather than on a quarterly basis. For businesses with predictable, on-time cash flow, the change is manageable. For businesses regularly waiting on customer payments, the shift to more frequent super obligations arrives at precisely the moment their cash position is most uncertain.
Eighty seven per cent of small businesses say paying super more frequently will put pressure on their cash flow, according to Xero. More than half, 58 per cent, cite customer payments as their biggest challenge to managing ongoing cash flow, closely followed by rising cost pressures at 57 per cent.
Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero, said the findings point to a challenge that goes deeper than compliance mechanics. “When one in three small business owners say they may need to use personal savings to meet Payday Super obligations, it’s clear this change is about more than compliance. It’s about whether businesses have the visibility and control to manage their cash flow with confidence. As margins tighten and pressure builds, real-time insights become essential,” Soin said.
The strain the research describes is not abstract. Almost one third of small business owners, 31 per cent, expect to dip into personal savings to meet Payday Super obligations, according to Xero. Another 31 per cent anticipate needing to borrow money. Others plan to delay paying business expenses, cited by 41 per cent, or delay paying themselves, cited by 38 per cent, to manage the cash flow pressure.
These are not the responses of businesses gaming the system. They are the responses of business owners who support the policy but are trying to work out how to make the numbers add up.
The cash flow squeeze will reach beyond day-to-day operations. Eighty two per cent of small businesses anticipate they will need to delay or reduce investment or growth plans in 2026, according to Xero. For a sector that accounts for a significant share of Australian employment and economic activity, that level of deferred investment has implications well beyond individual businesses.
Soin said with the 1 July deadline fast approaching, the findings highlight the urgent need for small businesses to prioritise operational efficiency now. “The right digital tools and automation can make a real difference. They give businesses better visibility, reduce manual admin, and help bring payroll and payments into a more connected workflow. Even simple steps like offering online payments on invoices, whether that’s card, digital wallets, PayTo or direct debit, can help businesses get paid up to twice as fast and improve cash flow,” he said.
What small businesses can do now
Despite the pressures ahead, the research suggests many small business owners are pragmatic about adapting. Almost a third, 31 per cent, expect to adjust to any business impacts within three months, and nearly two thirds, 62 per cent, believe they will be fully up to speed within six months, according to Xero.
Soin’s advice for businesses that have not yet started preparing is direct. “With late payments and tighter margins still putting pressure on small businesses, strengthening your systems now will put you in a much better position to meet Payday Super obligations with confidence and let you focus on what matters most for your business,” he said.
For small business owners, the 1 July deadline is now just over three months away. The research from Xero suggests the businesses best positioned to meet it will be the ones that address their late payment exposure and cash flow visibility before the deadline arrives, not after.
Research conducted by Xero across 500 employing Australian small businesses. Commentary attributed to Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero.
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