$76 billion small business cash flow crisis

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Cash flow is the number one issue affecting small to medium businesses right across Australia. According to The Invoice Market’s research that’s $76 billion worth of outstanding invoices and two million businesses drowning in a sea of unpaid bills.

If this issue was fixed, close to half a million jobs could be produced, reducing Australia’s unemployment rate to almost zero.

The Invoice Market’s SME Cash Flow Crisis Report illustrates that Australian businesses are constantly owed an average $38,000 each, with corporate customer excuses ranging from ‘lost in the system’ and ‘in dispute’ to ‘being reviewed internally’ and ‘being processed offshore’.

The average small business is owed a massive $38,000

Cash flow is so detrimental that more than a third of Australian businesses have to cash in their own personal savings to deal with their business cash flow, which severely impacts their ability to pay for their living expenses. This results in creating a hindrance to employ new staff, and makes it difficult to pay current workers.

According to The Invoice Market CEO, Angus Sedgwick, the findings had significant ramifications for Australians. Small businesses are the “engine room of the national economy“. “Almost half a million small and medium sized businesses say they would employ more people if they could improve their cash flow position, reducing Australia’s 715,000 unemployment queue to 200,000 people or fewer”, Mr Sedgwick said.

A third of businesses have to cash in their personal savings to boost business cash flow

According to the Australian Bureau of Statistics, half of all small to medium businesses go out of business in the first three years of operation. The Australian Securities and Investment Commission states that poor cash flow is cited as a factor in 40% of business failures.

Of the most shocking findings in this report is that even though late payments cost businesses money, it is the hidden costs that is the most revealing. Forty-six per cent of businesses have to ask twice or three times for their bills to be paid by erratic corporate customers.

Mr Sedgwick said that small businesses were actually the slowest in paying their bills to other small to medium businesses. “While Australians are renowned for their laid-back attitude, some businesses are having to ask for payment up to five times over several months, indicating that a new culture of ‘corporate selfishness’ has developed across Australia,” he said.

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19 COMMENTS

  1. It would be interesting to know the amount people delay paying. As in under $100, under $1000, $10,000 etc.
    Why don’t the government create a bank that for any purchase over (for example) $5000, a customer must pay the government (via cash or credit, based on the quote or similar) and the money sits in a holding account and is released upon completion of works. The business could send the invoice to both the customer and government agency with a 48 hour max turnover.
    I know gvt have a lot on their plate, but if the long time goal is an increase in employment and added bonus, government show their support to small business.
    Surely they can set it up similar to Qld run SPERs.

    • Thanks for your comment Jodi. That is a really interesting idea! You are so right about Australian small businesses deserving support. The Queensland government do have the State Penalties Enforcement Registry (SPERs). Information on this for those who are interested or who are doing business in Queensland is http://www.sper.qld.gov.au. What else would you like to read about next on Business Builders Jodi? What kind of small business do you have?

      • Hi Kathy,
        My husband is a builder, and (shameless plug) our website is http://www.outbackbuilding.com.au
        I’ve just finished reading Scott Pape’s book the Barefoot Investor – I wouldn’t mind reading an interview with him as he operates a small business.
        Also, I’ve read a lot of articles about making sure small business owners draw a wage. I would like to find out the best way of doing this, for sole traders when cash flow is an industry problem.
        Thanks Kathy.
        Jodi

  2. The only way we have any success is to get on the phone and threaten them with legal action. They totally ignore follow up accounts and final notices sent by email or letter.

    • Hi John – that sounds tough. It is shocking this is such a huge issue for small businesses in Australia when it is the small businesses who are creating jobs and helping the economy in such a big way. How long do you wait before you threaten legal action by phone?

  3. Yes – this resonated. Once an invoice is late …. I never really know how late it will be. Sometimes it hasn’t started going through ‘the system’ – they forgot, and it may be another month or two. Unfortunately, the worst time of year is receiving payments in January from December work … organisations often close and are on skeleton staff. It can be really challenging to plan holidays as you never know if your holiday spending money will come in. You follow up on the late invoice’s and receive an email the contact is on leave and remember the days of paid holidays, and when you knew that your pay would arrive on the day you expected it. It is often great clients and you don’t want to lose their business – so you politely follow up and then reluctantly follow up again when it doesn’t arrive ‘shortly’. I pay all small businesses pronto as I know what it’s like.

    • Great to hear from you Jane. Thanks for sharing your experiences with our Business Builders audience. Unfortunately, you aren’t alone. It is such a shame this is a huge issue for most Australian small businesses. Good on you for doing the right thing with other small businesses and paying promptly. If others followed your suit then all Australian small businesses would be given a huge boost. What kind of small business do you have?

      • Workplace Training for large corporations, government departments, universities and near every industry you could imagine. Most request a month to process payment after a service is delivered. Some pay at exactly a month but I guess 30% are late or more. I had one very large organisation as apart of their preferred suppliers agreement base payment terms on your business turnover figure. They were keen to support small businesses within the state and they set payment terms to be within 2 weeks a month or 6 weeks. They always pay on time and I gather this was a values based judgement.

  4. We make the Fair Air fire mask a highly fire resistant respirator with filters that are washable and reusable. Now in use with about 700 brigades in every state and territory plus exporting to NZ, USA, Canada and even Brunei.

  5. I work with schools often. I often been told that we only process payment once a month or a fortnight. Then the processed payment takes 30 days plus bank processing days. I know that they will pay eventually but I shouldn’t have to explain I need to be paid for the service I provide. I would lose my job if I say to my clients I will turn up there 2 months after you book me…

    • It just isn’t right. We know it is a huge issue for small businesses and will continue to look at it as an issue and provide any information or support we can. What do you think the solution is?

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