Mid-sized businesses leave suppliers $8 billion in the red with outstanding payments

Mid-sized Australian businesses owe $8 billion in outstanding payments to suppliers, with more than $2 billion currently overdue, according to new research released by American Express.

The survey of 355 CFOs revealed that the issue of delayed or late payment to suppliers is endemic within the sector, with mid-sized businesses unable to reconcile almost one third (30 per cent) their supplier invoices at least every other month.

This research comes as a nationwide inquiry commissioned by The Australian Small Business and Family Enterprise Ombudsman is due to release recommendations on possible solutions aimed at resolving the ongoing issue of late-payments for SMEs.

It is widely acknowledged that outstanding payments can cause significant cashflow problems for suppliers, many of whom are small or mid-sized businesses, and leave them unable to balance monthly income with outgoings.

Martin Seward, ‎Vice President for Small and Medium Enterprises at American Express Australia said that the issue of delayed or late payments was not only impacting suppliers, but could also be costing mid-sized Australian businesses billions of dollars every year.

“There is no doubt that suppliers rely on timely payment, with many going as far as to offer financial incentives for early payment,” Seward said.

“In fact, more than half (54 per cent) of Australian mid-sized businesses unlocked $1.84 billion in savings last year through negotiating early payment discounts with their suppliers, leaving them open to extra cashflow to reinvest back into the business for research and development or something as simple as staff recognition programs.”

“It’s encouraging to see that businesses and their suppliers can both benefit from preferential payment arrangements, but concerning that not all Australian mid-sized businesses recognise the value of timely payment – both to their suppliers and their own business.”

Almost all (94 per cent) CFOs surveyed said they would value the opportunity to pay suppliers on time however, cashflow pressures were cited as the number one factor when deciding how to pay suppliers. Given the opportunity to extend cashflow for up to 50 days, nearly one third of CFOs (30 per cent) said they would prioritise early payment of suppliers.

“We have seen CFOs who deploy credit as part of their cashflow management toolbox and benefited from the flexibility to pay suppliers early, while keeping capital in their business for longer. Using credit can also offer other benefits, such as reward schemes,” Seward said.

“Despite a positive outlook for mid-sized organisations, with 65 per cent of businesses forecasting growth in 2017, cashflow pressures still constrain mid-sized businesses from achieving their full growth potential. In an increasingly competitive economy, today’s CFO will not want to miss out on opportunities offered by effective and efficient cashflow management.”

Additional research findings include:

  • Early payment of suppliers is a key hallmark of successful businesses, with the majority (77 per cent) of high-growth businesses securing early supplier payment discounts
  • 75 per cent of high-growth businesses offered early payment discounts to their customers, whereas only 44 per cent of all mid-sized business did
  • CFOs said the additional working capital saved through early payment discounts can be transformational for their business, with almost half redirecting savings towards team training (44 per cent), and new products and equipment (44 per cent), and one-in-five CFOs reinvesting supplier savings into business innovation (21 per cent)
  • Supplier expenses account for one quarter (23 per cent) of a business outgoings; wages is the biggest expenditure, accounting for 39 per cent of all business outgoings
  • Business outgoings are split 65 per cent on domestic payments vs 35 per cent on international payments; cash and credit remain the preferred payment options for domestic payments, whereas only 14 per cent of CFOs use cash for international payments

Inside Small Business