The 2017 Payment Times and Practices Inquiry[1] produced by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has been circulating in the media over the past few months and it’s generating awareness of how poor payment habits affect small businesses across Australia. 

The report highlights Australia’s payment times as the worst in the world, paid on average of 26.4 days late and average length of extended payment terms is by 36.74 days. CreditorWatch, an online commercial credit bureau, was born as a result of poor payment habits. Our customer data represents the full business spectrum in Australia and shows similar trends in late payments as a whole.

For an invoice payment term less than or equal to 30 days in the last twelve months, the average payment was 22 days late and over the last twenty-four months, it was 25 days. For invoice payments greater than 30 days, the last twelve months it was 18 days and last twenty-four months it was 20 days. 

In response to the ASBFEO report, a review was requested by the government and a survey was sent out to small businesses. In an interview with the ASBFEO Ombudsman, Kate Carnell, she said that 360 small businesses had completed the survey within the first 48 hours. “The review is giving us a look at what is actually happening in the market place and we are getting real feedback.”

In the end, more than 500 businesses responded to the inquiry in just four days, highlighting the issue of lengthy payment times and pressure to incorporate unfair extended payment arrangements in contracts. The response was unprecedented, and the survey was extended.

The report largely focused on the late payment behaviour of larger corporations and government. “Multi-nationals generally are the worst. Large construction companies, manufacturing and mining- that’s where we are seeing a real issue. We are also hearing that entities in the health and hospital areas are very slow payers,” explained Ms. Carnell.

“The unfortunate part is that when we talk to large corporations, they pay slowly because they can,” Carnell explains. “They think it improves their bottom line and use small business as banks. It’s not an option for small businesses to avoid dealing with larger corporations, and they know that.”

With 2.23 million SMEs employing 7 million Australians (more than half of the economy[2]) it’s easy to see how larger corporations are taking advantage of smaller businesses. It’s a catch twenty-two. “If you don’t deal with the big guys, then you don’t have much choice to make it, as they control a large portion of the market. You are looking at a situation where people are using their market power to pay people slowly,” Carnell explains.

“The thing is, small businesses need to be paid on time so that they can pay their staff, pay their rent, pay other businesses and if they can’t do that, then cash flow breaks down.” The latest findngs by ASIC’s[3] Corporate Insolvency report confirm that the top reason companies went broke in the 2016-2017 financial year was inadequate cash flow. “It’s simply unethical to pay slower than 30 days,” said Carnell.  “With current technology, there’s no reason why they can’t pay faster.”  

A report by Xero[4] highlights that digital connectivity is helping Australian SMEs thrive and it should be a national priority.  Yet, according to the report, 30% of SMEs are still not engaging with technology. Businesses of all sizes are living in a great time and have access to new, innovative technologies which make it easier for them to change their payment process and improve cash flow. These technologies are constantly being developed at rates so fast, it’s hard to keep up but they are also more cost-effective.

There are many forms of technology that exist for both SMEs and larger businesses which can assist with paying on time as well as ensuring they are getting paid. Automation software, API integrations, cloud-based technology, credit monitoring platforms and automation software are just a few ways that businesses could improve payments and credit practices with technology. 

Recent CreditorWatch data[5] demonstrates how taking a proactive approach like lodging a default is assisting businesses.

Notable research shows that the time between lodging a default and being paid has gone from an average of 210 days in 2015 to an average of 21.9 days in 2018. In just four years, that is a massive improvement. CreditorWatch data also shows that there has been an increase in payment defaults registered across the construction, wholesale trade, manufacturing and financial services industries, which is consistent with the ASBFEO findings.

Businesses of all sizes need to take responsibility for paying each other faster. Some larger companies have seen the writing on the wall and have begun to enact small business payment terms which is a start, albeit with some questionable classification of exactly what a small business is. At the end of the day however, if all businesses are paying each other quicker, we’ll start to see a positive chain reaction of improvements up and down the supply chain and across all industries.

The ASBFEO report and review has been great in generating awareness for the issue of late payments and extended payment terms. Unfortunately, the fate of many businesses can’t wait for legislation changes and government implementations. The situation doesn’t have to be as bleak as it appears. There is a wide variety of technology available right now for businesses of all sizes which can help to reduce the problem. Empowered by technology and data, businesses need to work together to ensure that they are changing negative payment patterns across Australia.

 

Patrick Coghlan

Managing Director

Creditorwatch

Ph: 1300 50 13 12

www.creditorwatch.com.au

December 2018

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[1]  Payment Times and Practices Inquiry 2017, Australian Small Business and Family Enterprise Ombudsman (ASBFEO), https://www.asbfeo.gov.au/sites/default/files/ASBFEO_Payment_Times_and_Practices%20Inquiry_Report.pdf

[2] Moments that Matter: Understanding Australia Small to Medium Businesses 2017, NAB, https://business.nab.com.au/wp-content/uploads/2017/06/J002580_MTM-Whitepaper-IPSOS-FINAL_C1-2.pdf

[3] 18-342MR ASIC Reports on Corporate Insolvencies 2017-2018, ASIC, https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-342mr-asic-reports-on-corporate-insolvencies-2017-18/

[4] New Report: How digital connectivity is helping Australian small businesses thrive, October 2018, XERO, https://www.xero.com/small-business-insights/new-report-how-digital-connectivity-is-helping-australian-small-businesses-thrive/

[5] Payment Defaults Infographic 2018, CreditorWatch, https://online.creditorwatch.com.au/rs/713-FXI-767/images/Payment%20Default_infographic.pdf