Earlypay CEO James Beeson warns Victorian SMEs face mounting pressures from rising costs, patchy demand and growing compliance burdens, with the state ranking last nationally for business competitiveness.
What’s happening: Victorian small and medium businesses confront rising operating costs, patchy consumer demand and growing compliance burdens that are squeezing margins and pushing more operators into cash flow stress, according to working capital provider Earlypay.
Why this matters: As the second most populous state accounting for almost a quarter of national gross domestic product, Victoria’s poor business environment has outsized impacts on Australia’s global competitiveness and investment attractiveness.
Victorian small and medium businesses are confronting a mounting combination of rising operating costs, patchy consumer demand and growing compliance burdens that are squeezing margins and pushing more operators into cash flow stress.
James Beeson, CEO of working capital provider Earlypay, said the cost of doing business in Victoria is increasingly standing out compared to other states, with higher state taxes, charges and compliance demands adding to the burden.
“Put bluntly, Victorian small businesses are doing it tough,” said Mr Beeson.
The Business Council of Australia’s Regulation Rumble report released late last year highlighted Victoria as the least competitive jurisdiction in which to do business and having the most room for improvement, due to regulatory and tax settings holding back the state economy.
Regulation Rumble ranks states and territories based on planning systems, payroll taxes, property taxes and charges, retail trading hours, workers’ compensation premiums, duties on insurance, and licences and requirements to do business.
Business Council Chief Executive Bran Black said whilst South Australia topped the rankings for the third consecutive year as the best state to do business, Victoria continues to have the most work to do, with some of the nation’s highest tax rates and regulatory requirements making it the least attractive state in which to do business.
“The success of Victoria matters, and practical reforms to payroll tax, property taxes, and business licensing would deliver a big boost to the state’s ability to win investment,” said Mr Black.
Last place nationally
Victoria’s payroll tax represents the most punitive system in Australia, with big employers facing a top rate of 6.85 per cent after including surcharges. Only the Australian Capital Territory imposes a higher rate. Payroll tax kicks in once payrolls hit just $1 million, equal to the lowest threshold in the country.
According to the Regulation Rumble analysis, Victoria requires approximately two-thirds more licences and regulatory requirements to open a café compared to the Northern Territory, and around 50 per cent more than South Australia. The report found that a café in Tasmania requires approximately 66 per cent more licences and regulatory obligations compared to the same café in the Northern Territory.
For 17 of the past 18 months, Victoria recorded the highest unemployment rate in the nation, according to Australian Bureau of Statistics data.
Cash flow crunch
On top of the regulatory and tax burdens, many Victorian SMEs are juggling higher wages and input costs, rent and insurance increases, and persistent energy bill pressures. Customers remain value conscious, and spending decisions are increasingly delayed.
Mr Beeson said the challenges are most acute for businesses with longer customer payment terms, seasonal trade or thin margins, where even a slight change in cash timing can have an outsized impact.
“They’re dealing with higher costs across the board, unpredictable revenue, and an ever-growing list of rules to comply with, often without the time or in-house resources larger companies take for granted,” said Mr Beeson.
“Cashflow is the make-or-break. When payments arrive late or expenses rise suddenly, it doesn’t take much for a well-run SME to fall behind. That’s when stress levels spike because payroll, tax and supplier bills don’t wait.”
Research shows that 87% of Australian small businesses reported at least some cash flow issues in the past year, according to Xero’s Money Matters report. More than half of Australian business leaders are concerned that the number of late-paying customers will increase.
Beyond the immediate financial stress, Mr Beeson noted a confidence hit impacting even stable, well-run businesses.
“A lot are holding back on growth decisions like tendering for new work or adding headcount, purely because the timing and uncertainty feels harder to manage and less predictable,” said Mr Beeson.
Crime compounds pressure
Other major pressure points in Victoria include staff shortages and managing the complexity of workplace compliance, as well as rising energy costs and a spike in crime, which is proving challenging for parts of the retail and hospitality sectors.
The Victorian Default Offer for electricity increased by 1% for domestic customers and 3 per cent for small business customers from 1 July 2025, according to the Essential Services Commission. Average annual bills based on default offer prices reflect ongoing energy cost pressures for operators.
The Victorian Government has announced plans to halve the number of business regulators by 2030, which coupled with other measures to reduce regulatory burden, aims to save Victorian businesses $500 million by 2030. The government has also committed to establishing a single entry point for business on all investment-related engagements and appointing a Coordinator-General to ensure agencies meet approval deadlines for major projects.
Despite these commitments, the Business Council’s analysis suggests Victoria needs more substantial reform to improve its competitive position. The report commends recent Victorian planning reforms that will assist in speeding up approvals and delivering more homes, representing one area where the state has shown improvement, climbing to fourth nationally in planning system performance.
Mr Beeson said reducing stress on Victorian SMEs requires a practical policy focus on easing cost burdens, simplifying compliance and improving cash flow resilience.
“We need a genuine business reset that includes targeted government assistance where it actually moves the needle, cutting red tape and sensible tax relief that rewards employment and investment,” said Mr Beeson.
“Government has a role to play in removing unnecessary pressure points, but many of the challenges facing SMEs today come down to timing. When costs arise faster than revenue is received, even well-run businesses need to manage gaps between income and obligations. That timing risk doesn’t disappear through policy alone.”
Mr Beeson also said improving payment practices by large organisations would help reduce uncertainty for smaller suppliers, but access to flexible working capital remains critical for businesses operating on longer payment terms or seasonal cycles.
According to cash flow management experts, the challenge often centres on managing all parts of the working capital cycle as efficiently as possible simultaneously. Debtor management must start from the moment work begins, not when unpaid invoices fall overdue.
Earlypay said SMEs can act now by reviewing payment cycles, stress testing funding needs under different trading scenarios, and ensuring appropriate working capital structures are in place before pressure builds.
The Victorian Chamber of Commerce and Industry represents more than 100,000 members, customers and clients, and has called on the Victorian Government to impose no new taxes and reduce the regulatory burden on business, enable the property sector by cutting land tax and red tape, and better coordinate significant infrastructure including private-sector led projects.
For businesses operating nationally, the Regulation Rumble report highlights significant variation in costs and compliance across jurisdictions. Payroll tax rates range from South Australia’s 4.95 per cent to the Australian Capital Territory’s 7.85 per cent for large employers. Thresholds vary from $1 million in Victoria and Western Australia to $2.5 million in the Northern Territory.
The report positions these competitive tax systems and effective regulation as part of the economic fundamentals necessary for a more resilient, diversified and dynamic economy, with jurisdictions achieving higher rankings generally better placed to capture business investment and support employment growth.
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