Small businesses are being pressured to pay invoices faster while larger businesses lag behind, increasing the risks for small business-owners already plagued by cashflow issues.
Our research* revealed that over the past 12 months, small businesses of between 10 and 50 employees were paying their invoices the fastest, followed by micro businesses –one to 10 employees, which paid invoices with an average of 10 days beyond terms.**
At the other end of the scale, businesses with more than 50 employees were the worst offenders in regard to late payments, tending to pay their invoices at a rate 1.5 times slower than the average.
The disparity between the average days-beyond-due-date of late payments of small and large businesses had a host of negative knock-on effects, not just for small-business owners but also for the wider economy.
Cashflow is the single biggest pain point for SMEs, according to our research. SMEs that work with larger companies are often left particularly vulnerable to slow payments. If a customer owes a lot of money, this can put small businesses under significant strainwhen it comes time for them to pay their own invoices.
Chasing customers for late payments is both stressful and time consuming – it takes time and money away from growing a small business and, if prolonged, contribute to business failure.
According to our data, large businesses of more than 100 employees in the information and media industry pay invoices slowest – 44 days beyond terms on average. These businesses were followed by those in agriculture, forestry and fishing – 30 days; healthcare and social assistance – 24 days; and professional services – 20 days.
Reducing risk crucial for small business
An even greater risk to SMEs is becoming involved with a company that is paying invoices late due to internal financial difficulty.
One of the first things a business will do when it runs into financial trouble is attempt to renegotiate payment terms or simply stop paying its suppliers. While small businesses can’t always always control cashflow, they can give themselves the best advantage by controlling the credit risk of whom they do business with.
Damien Stevens, Senior Product Manager, Veda
*Veda data analysis of 570,000 businesses
**Days beyond terms is a business credit term; the calculation of the average time taken to pay invoices past the due date, weighted by the dollar amount outstanding
