Late payments causing more than a headache for SMEs

New research from MYOB has found a majority of Australian small business operators experience both business impacts and personal challenges due to late customer payments.

In fact, 77 percent of businesses had felt some sort of business impact due to a customer not paying their bills on time, while only 23 percent saw no impact at all, revealed the latest SME Snapshot from MYOB, the cloud accounting provider.

The effects of late payment means 35 percent of business owners’ feel the crunch when it comes to personal finances and 32 percent don’t have the ability to cover expenses such as rent and power.

Late payment also takes a significant emotional toll on SMEs, with 52 percent confirming it impacts their stress and anxiety levels.

Tim Reed, CEO of MYOB said the results indicate a clear call for action.

“It’s unfair that many small business owners are being subjected to late payments on top of the day to day challenges of running their own business. The financial health of Australia’s small business owners should be a top priority and the research indicates this also has a direct impact to their own personal wellbeing.

“Improving this situation to ensure all businesses are being paid on time should be a shared responsibility across Federal Government and businesses of all sizes,” said Reed.

The survey also found that 72 percent of small business owners were in favour of introducing a voluntary code to encourage businesses to pay more promptly. 

“Given the overwhelming support for this initiative, it would be a positive move to see the government and big businesses to put forward an initiative to implement a national prompt payment protocol to ensure small businesses are not being delayed payments by other businesses.”

Kochie’s Business Builder’s spoke to Small Business First, the community that have been advocating on behalf of the small business community for better payment terms. 

Rajhev Rajkumar, the General Manager said, “We continue to hear from members of Small Business First about the stressful, time-consuming and potentially disastrous effects of being on the receiving end of poor payment terms. The Prompt Payment Code that was introduced in the UK in 2008 has played a significant role in improving payment terms for small businesses, which is why Small Business First has started a petition calling for a similar initiative to be launched here in Australia.”

“In essence, code signatories undertake to pay suppliers on time, give clear guidance to suppliers and encourage good practice. It currently has more than 1,800 signatories, with each signatory committing to best practice in the fair and equal treatment of suppliers, many of whom are smaller businesses.

“The UK Government has led by example, with Central Government Departments committing to a target of paying 80 per cent of undisputed invoices within 5 days, and the remainder within 30 days. Departments are publishing their performance against these targets quarterly. In addition, the UK is introducing a Statutory Duty to Report for large businesses to report on payment practices that comes into force from 6 April, 2017.

“Good cash flow is the lifeblood of any business. We believe that advocating for a prompt payment culture in Australia through the introduction of measures similar to those seen in the UK will allow many small business owners to focus on growing their businesses. We urge owners, employees and supporters of small businesses to sign the petition on smallbusinessfirst.com.au calling on government and business leaders to introduce an Australian Prompt Payment Code.”This follows a recent call to action from COSBOA calling for the development and implementation of a national prompt payment protocol where signatories voluntarily agree to abide by the rules of the protocol and are publicly recognised for doing so.

“Some big businesses are taking more than 90 days to pay an SME despite agreed payment terms being 30 days – and this can be the difference between insolvency and a healthy business continuing to operate,” said Peter Strong, CEO of COSBOA.

When asked what they thought the main reason for late or slow payments were, 52 percent of survey respondents indicated a lack of regard for invoicing terms and payment processes. This was followed by almost half of respondents nominating cashflow issues among customers.

“We know from previous MYOB research that cash flow concerns are consistently a top pain point for SMEs, but the lack of regard for their external terms and processes highlights a new concern for these business operators,” added Reed.

These findings echo previous MYOB research from last month’s SME Snapshot, which revealed 54 percent of small businesses have previously waited over six months to be paid by a customer, with more than seven in ten writing off money owed to them.