Late payers are holding back Australian small business owners. Here’s how to take your power back.

Halting or delaying payments to small businesses is hindering small business growth and survival in Australia.

In fact, for many small business owners, waiting to be paid has unfortunately become part of the Australian business culture and dealing with late payment terms is a significant barrier to SME growth.

Dealing with late payment terms is a significant barrier to SME growth.

According to fintech financier The Invoice Market, the estimated two million Australian small businesses are drowning in unpaid bills, and are constantly owed an average of $38,000. The report found that the mining, hospitality, tourism and real estate sectors most commonly pay late.

Small Business Ombudsman Kate Carnell highlighted the severity of the issue by commenting that ‘large companies are treating small suppliers with contempt’ by withholding payments for so long.

As she points out, the problem stems back to the inherent long payment cultures among big business, with terms usually sitting on 60 days. This concentration at the top cultivates an imbalance of power in such a way that companies are effectively using their supply chain as a line of credit. Meanwhile, suppliers rely on big buyers, placing them at their mercy.

The move to improve payment conditions for SMEs comes on the back of the recent Dun & Bradstreet Australian Trade Payments Analysis released in October last year. It found that the average business time to pay a bill is 44.8 days, while New Zealand businesses pay more quickly with an average 34.9 days.

The analysis also found that businesses of between six and 19 staff settle their invoices at the fastest average rate of 40.2 days. On the other hand, big corporations with more than 500 employees are paying invoices at the slowest rate, of 52.4 days.

Take back the power

But there are steps that small business owners can take to wrench back the power.

Growing numbers of SMEs are automating the debtor management process by implementing technology such as the IODM (Innovative Online Debt Management) platform. The platform’s own statistics show that 70% of debtors pay on the third reminder, or go on a payment plan.

IODM calculations reveal that for every $50,000 in outstanding invoices, the hidden cost of this debt is $6,250, which includes forgone bank interest, overdraft rates, lost business opportunities, no access to early payment discounts and time spent manually chasing debtors.

Consider having a trade credit insurance policy, which can protect against debtors who become insolvent or don’t pay within credit terms.

Small business owners should consider having a trade credit insurance policy, which can protect against debtors who become insolvent or don’t pay within credit terms. Steadfast brokers are experts in this space, so contact your local Steadfast insurance broker for more information and to help protect your business.

Tips on shortening payment timeframes for SMEs:

• Stick to your credit policy: Don’t just accept payment terms bumping up to 60 or 90 days. Make your payment terms clear when you start working with them.
• Make it easy to pay: Look into other options apart from cash and direct deposit that make it easy for your small business to accept payment such as BPAY, PayPal or credit card.
• Automate the follow-up: Automate the invoice chasing process, removing those awkward conversations with your customers.
• Offer incentives to pay early: You could consider offering a discount to customers that pay before a pre-determined date.
• Add Pay Now: Platforms such as Xero that offer the Pay Now option can help encourage customers to pay faster, so consider adding a link to all invoices.