Big business and government divisions are contributing to the death of small businesses in a less obvious form than first thought.
We are aware that the big players competing against small businesses and start-ups often win with their strong bargaining power, unparalleled ability to compete on price and lower cost structures. What isn’t always considered is lengthy or overdue invoices and payments. I’m not talking about a week-old invoice, but instead an invoice that is three months overdue.
Government departments and big businesses in Australia are known to be slow at paying for the work completed by small businesses and start-ups. Their strict, non-negotiable payment terms are generally 90 days in the first instance and it’s unfair that they are already taking advantage of their situation before even signing a deal.
Studies have found late payments to be worse in Australia than other countries, and from my experience as well as speaking to other small business owners, the big players are the worst culprits.
The bigger the business, the bigger the problem
Although small businesses are likely to be short on cash, most small business owners say that it is usually their largest clients that are the slowest to pay for completed services.
Bigger businesses should be supporting those in their infancy, especially as they too were in the same position once before and understand how much they are relying on that money. Not receiving money from them is harder to swallow as you know that they aren’t struggling to find the funds, but are buried in bureaucracy that means they can’t pay.
It halts start-up growth
Start-ups can’t expand, hire more people or even complete future work if they aren’t receiving money for work already completed.
Small businesses have wages, rent and other bills to pay and struggle to operate when they aren’t receiving earned money. It contributes to poor cashflow, loss of staff and in some cases causes businesses to cease operating. The owners are always taking on extra responsibility for everything in their business and don’t have the time to be chasing up unpaid or overdue invoices that far exceed payment terms.
These things make start-ups hesitant about taking on big clients as it can take months of work to see a cent. It acts as a deterrent for taking on future work from huge clients, which simultaneously is a necessity for the business to expand.
While big businesses think they are making a positive contribution and are supporting small businesses but instead by not paying, they are adding to the problem and stifling innovation.
The playing field needs to level-up
Established businesses and government departments don’t realise that what might be a small sum of money to them is quite large for small businesses and start-ups. Nobody wants to necessarily come and say that they can’t survive without that money, but for large invoices that are months away, it can be the case.
Small business owners do not appreciate being taken advantage of, where the tough payment terms imposed mean they are being used as an easy source of cheap finance. They are accruing interest on the money they already have and it needs to stop. To make matters fairer, small businesses and start-ups should charge interest for payments that are extremely overdue and larger businesses need to reconsider their lengthy payment terms.
My final words to large corporations out there is that if you really want to support small businesses, pay up.
Gerard Holland, co-founder, Outcome.Life and Outcome-Hub
