A survey of more than 500 small-business owners and managers found nearly four in five (79 per cent) of those polled support a government-backed policy to shorten the time it takes big businesses to pay small businesses. Late payments can cause major strain on small businesses, who are unable to hire more people, purchase more equipment or grow faster when there is a cashflow gap.
And the majority of small-business managers surveyed said they want to see the government encourage a fairer system for small businesses to compete with big businesses for contracts (84 per cent), and help level the playing field with big businesses (70 per cent).
The findings provide the strongest support to date for a payments code aimed at solving the cashflow gap between big and small businesses in Australia, ahead of an anticipated report into the payment times by the Australian Small Business and Family Enterprise Ombudsman. While the vast majority of small businesses have payment terms of 30 days or less for their suppliers, many big businesses mandate terms of 60 or more days, with some refusing to pay faster than 120 days after invoice.
Red-tape is often acknowledged as the scourge of progress, and the same is true when it comes to big businesses paying small business – “process” is touted by small business as the most common reason for late payment by big business (83 per cent).
“In our experience, increased regulation and red tape do as much harm as good, particularly when the increased burden on small businesses is taken into account,” said Trent Innes, Xero Australia Managing Director. “Rather, we’re looking to the government to bring about non-legislative measures that foster and encourage big businesses to do the right thing, and pay fairly.”
An analysis of Xero’s combined invoice statistics found that, over the past six months, one in five invoices payable by ASX 200 companies to small businesses have been overdue by more than 30 days, with more than 3.8 million invoices currently overdue to small businesses on the Xero platform around Australia.
Big business means power
A large majority of small businesses that took part in the study (84 per cent) said that big businesses have too much negotiating power, and as a result are found to suffocate small-business cashflow, while facing few consequences.
The consequences for small businesses, however, are critical: almost half (49 per cent) of businesses said that late payments hinder growth, while 34 per cent can’t purchase more equipment and one in five can’t hire as quickly as they need to.
Most critically, poor cashflow can put a small business’s solvency at risk.
“Our study found that six in ten small businesses would not survive more than three months if all invoices went unpaid. Some six per cent of businesses wouldn’t even last a week,” Innes said. “While the upcoming payments inquiry hints at possible governmental intervention in the near future, small businesses need viable solutions now.”
Technology bridging the gap
Small businesses are turning to technology in order to get paid faster, and to bridge the cashflow gap. Around two thirds of businesses (63 per cent) are using technology and software to monitor and manage payments while the same amount now offer customers an option to pay online, the most popular options including:
- PayPal
- BPAY
- Mobile payments.
The impact technology is having on payments is, in the eyes of Australia’s small businesses, overwhelming. Almost every business offering one of these online payment options (95.3 per cent) say technology methods are “very” or “somewhat” effective in reducing late payments, while another 59 per cent of these businesses said allowing online invoicing is a major solution to late payments.
“We use technology to make pretty much every part of our lives easier, and business payments has finally caught up,” Innes said. “While technology provides a good solution now, Australia’s small businesses need — and want — to see the government fighting their corner.”
Inside Small Business
