Late payments are the biggest issue Australian SMEs face. With $26 million owed in unpaid invoices averaging around $13,200 each, these businesses spend over 12 days a year in business operations chasing unpaid invoices.
A lack of cash flow means stalled business growth, which often leads to debt and, in the worst case, liquidation. At a time where growth is the imperative for SMEs, delayed payments mean these businesses lose the chance to capitalise on their full opportunity. This often results in businesses being crushed by competition or acquired by a larger company. Inconsistent cash flow problems for SMEs impact Australia’s innovation growth and the greater business economy.
However, the effect of late payments on SMEs have not gone unnoticed. As with economic peaks and troughs, there may be a light at the end of the tunnel.
Slow Payments: Shining the Light on Big Players
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has launched a new inquiry into payment terms coined Payment Times and Practices. The purpose of this inquiry is to draw attention to what’s happening in the business world. Through this inquiry, the ombudsman hopes to affect the bigger players to decrease payment terms and recognise the effect they’re having on the smaller players.
Carnell argues that the big players in various industries have the power to leverage payment dates, and sometimes they even abuse this power. To this point, Veda’s survey of payment terms over 12 months revealed that smaller businesses paid invoices the fastest whereas businesses with more than 50 employees paid invoices at almost less than half the speed. Furthermore, Australia has the longest payment terms in the world — with payments averaging 26.4 days late followed by Mexico with 18.6 days.
With 90% of all business failures caused by cash flow problems, more and more so, businesses are becoming aware of the time spent on chasing up unpaid invoices and the pressing need for cash in the interim between payments. These are all operational burdens, which decrease business efficiencies and impact profit in a negative fashion.
New insights on the impact of slow payments on Australian SMEs are sure to arise. However, in the meantime, it’s important for these businesses to have a clear understanding of how they can deal with the effect these payment terms can have on their cash flow needs.
Slow Payments Don’t Have to Mean Slow Business
With this knowledge, SMEs need a focused strategy to ensure they have the consistent cash flow to manage day-to-day operations. There are a number of ways businesses can access the cash they need to retain profit and capitalise on business opportunities.
These methods can range anywhere from loans to invoice financing. At TIM., we offer a unique invoice financing solution that has resulted in excess of $192 million funded invoices for Australian businesses.