Small business should never be a bank for big business

It is no accident that slow payment times by small-business clients have been probed by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell. Cashflow problems caused by late payments can be fatal for small businesses and the problem is increasing as SMEs become a bank for big business, as the Ombudsman recognises.

The ASBFEO issues paper states that “evidence from Australia and overseas indicates large businesses are using their bargaining power to extend their payment times to their suppliers while reducing or keeping the payment terms for their customers shorter. Late payments and extended payment times have a significant impact on the SME subject to these conditions. These businesses usually have small, if any, cash reserves and are dependent on a fast cashflow cycle to maintain solvency.”*

The impact was emphasised in the findings of the ASBFEO report. While almost all businesses require payments within 30 days, half of Australian businesses report late payments on more than 40 per cent of bills owed, and 20 per cent were paid more than 60 days late.**

Our aim is to simplify the day-to-day running of small businesses. In our submission to the Ombudsman’s inquiry, we included the findings of a survey of over 500 small businesses we conducted in December 2015 with one of our payment partners PayPal. It was called How Small Business Can Improve Cashflow and some of its findings were eye-opening.***

The survey showed our respondents were owed an average of $13,000 at any given time. If that figure is representative of the entire Australian small-business population, it would mean nearly $26 billion is owed to Australian small businesses at any one time.

The findings also identified other current small-business practices that intensified the problem. For example, 67 per cent of small businesses took up to a week to issue invoices after completing all work; only 12 per cent requested upfront payment; and less than one third used electronic payment options.

One of our customers Daniel Platt, co-owner of private tour company Localing, discovered how crucial e-invoicing was to addressing issues caused by late payments.

“Late payments can be detrimental to the operations of my business. E-invoicing with QuickBooks allows me to manage this challenge by issuing invoices easily and simply, which has shortened the time we receive payment from debtors,” he says.

We have identified several ways small businesses can get paid faster, which were included in our submission to the ASBFEO:

  • use mobile-technology tools to organise invoice creation and tracking so bills are sent on time and follow-up is easier
  • create clear, easy-to-understand invoices and use tools that facilitate payment within the invoice interface
  • offer discounts or lower pricing for immediate or instalment-based payment terms to incentivise customers to pay sooner
  • use technology tools to track payment types and times in order to build data and reliable metrics that can inform future payment decisions (including payment terms)
  • partner with third-party payment solutions to offer increased payment solutions to customers.

My goal will always be to help our customers run their businesses as simply and easily as possible, paving the way for future growth and continued prosperity. Our strategy is to unlock the knowledge and the insights we have so our customers can focus on the basics, run their businesses well and get paid in full and on time.

Doing this electronically is the driving force to this strategy and we look forward to working with the government and others in industry to ensure this policy keeps pace with technology.

* http://asbfeo.gov.au/sites/default/files/ASBFEO_Issues_Paper.pdf

** http://apo.org.au/node/75618

*** Intuit & PayPal (2015) ‘How Small Business Can Improve Cashflow’

Nicolette Maury, Vice President and Country Manager, Intuit Australia

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