Xero study reveals $115 billion in small business late payments

• Over half of all invoices to SMBs are paid late.
• By paying SMBs on time, the report found that a stimulus of $7 billion would be provided to small businesses
• Delayed payment times were also linked to slower business growth

Small businesses are being severely impacted by late payments from their big business counterparts according to new research by leading cloud accounting solution Xero.

The Paying the Price: the economic impact of Australian big businesses paying small businesses late report revealed $115 billion in payments from large businesses to SMBs is paid late each year, tying up cash-flow and growth opportunities.

Xero drew on information from Small Business Insights to pull data from more than 10 million invoices issued by 150,000 small businesses, indicating the problem is endemic. The research found that half of all trade credit invoices are paid late and that solving the problem would see small and medium businesses benefit by $4.38 billion over 10 years.

Trent Innes managing director Xero Australia described late payments as the scourge of small business and suggested more must be done to even the playing field.

“Being able to name the staggering figure of $115 billion for the first time gives fresh urgency to solving the problem. We call on big business and government to prioritise this issue. Our research finds that addressing the fundamental inequality of small business carrying $115 billion worth of debt on behalf of big business will deliver a significant benefit of $4.38 billion to SMBs over a decade,” Innes said.

An average settlement time of 23 days past due date was common for 53 per cent of trade credit invoices, showing this sector is particularly vulnerable to late payments from corporations.

Xero’s findings suggest that if these invoices were paid on time it would be the equivalent to transferring $7 billion in working capital from large businesses to SMBs.

The report also found the late payments had a flow-on effect with small businesses that were paid late then paying their own suppliers 8 days later than those businesses that were paid on time.

Innes suggested the magnitude of the debt that small business owners are carrying for their big business counterparts was no longer acceptable.

“We can no longer accept it as the status quo that Australian small business carries billions of dollars of debt for big business. The $115 billion of late payments identified in the report equates to around $52,000 owed to each small business in Australia. That’s the value of giving every small business owner a Toyota Hilux 4×4. It’s the value of 2 NBNs, or twenty-three Snowy Hydro 2.0s,” said Innes.

Angus Capel, Small Business Advocate, Xero suggested it was time the government took further action on late payments.

“Encouraging large businesses to pay on time should be a priority for the 46th Parliament,” said Capel.

“Government and industry are to be commended for the substantial steps taken to address small business late payments. However, the newly found scale of interest-free loans, in the form of late payments that big business continues to force upon small business warrants further attention,” added Capel.

Innes suggested unlocking this capital for small business to use will give a significant stimulus to the economy.

“Faster, predictable payments will generate greater stability and confidence amongst the small business sector. Small businesses will grow faster, have better cash flow, employ more people and take on more business risk,” concluded Innes.