New research shows that SMEs are waiting an average of 56 days to be paid, despite repeated calls to big business to pay their smaller suppliers on time.
The research, conducted by market analysts East & Partners on behalf of SME funder Scottish Pacific, surveyed over 1200 SME owners and senior finance staff across a selection of industries throughout the country.
The findings showed a huge disparity in how long it takes businesses in the $1-20 million revenue bracket to get money in the door, ranging from seven days to, in extreme cases, 134 days. Meanwhile, businesses with a $10-20 million revenue have a more manageable waiting period with payment times of up to 40 days.
COVID-19 making a bad situation worse
Scottish Pacific CEO Peter Langham noted that the COVID-19 pandemic occurring after the survey was taken may drag these payment times out even longer.
“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.”
On average, the research found that SMEs have almost a third of their revenue (29 per cent) tied up in outstanding invoices, with 16 per cent of revenue locked into overdue invoices (outstanding beyond 90 days). East & Partners estimate that each SME is dealing an average of $2.82 million in outstanding accounts receivable. This equates to the Australian SMEs (with $1-20m revenue) having up to $776 billion annually in outstanding total invoices.
“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.”
Poor cashflow hindering growth
He added that the findings highlight the importance of businesses finding the right funding to unlock working capital. Scottish Pacific’s H2 2019 SME Growth Index showed that SMEs were already flagging that it was becoming increasingly hard for them to meet tax payments on time. Also troubling is the finding that many were unable to take on new work due to cashflow constrictions.
“Poor cashflow 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,” Langham said.
