Small business owners are waiting on average 56 days to be paid, despite recent pushes by the government and ombudsman to reduce payment times to 30 days, resulting in up to $776 billion in late payments annually.
Independent research conducted by East & Partners on behalf of national small business lender Scottish Pacific found small business owners are facing major delays in receiving payments, the smaller the business, the more likely it was to face setbacks in getting paid. The report found businesses with an annual turnover of $1-10million were waiting in excess of 66 days, while one business even reported payment times of 134 days.
Scottish Pacific CEO Peter Langham suggested late payment times are inhibiting business growth and placing unnecessary pressure on business owners.
“Money that could be used to expand revenue and invest in growth is being tied up for too long, as SMEs struggle to be paid within a reasonable timeframe,” Langham said.
“This is a significant burden to bear and reinforces the importance of reducing payment times, in particular for SMEs struggling to source new funding or to refinance their existing borrowings.
“There is a great disparity and we see as businesses become larger they get paid more quickly.
Langham said small businesses consistently struggle with late payments. On average, a third of their revenue is tied up in outstanding invoices, with 16 per cent of revenue locked into overdue invoices (outstanding beyond 90 days).
East & Partners estimates there is up to $A776 billion annually in outstanding invoices.
Langham suggests this multibillion-dollar debt is severely hampering small business owners from exploring new business opportunities.
“Each SME has to manage while having, on average, $1.55 million in invoices that are not just outstanding but overdue (defined as beyond the 90-day mark),” Langham said.
“At the extreme, some small businesses are waiting up to four months to be paid and almost one in 10 SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report,” he said.
Langham said the findings highlight the importance of businesses finding the right funding to unlock working capital.
“Given these existing indications, along with the late payment times and accounts receivable data in our latest research, it really highlights that poor cash flow will remain a pressing challenge for SMEs throughout 2020,” Langham said.
“Poor cash flow is costing businesses time and resources to settle invoices that for some enterprises stretch out over an entire financial quarter, when it would be of more benefit for the SME sector, and the economy in general, if they could use these resources to expand revenue and invest in growth.”
Scottish Pacific’s H1 2020 SME Growth Index research will be released later this month.
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