Banking News

Small Business A$776b Late Payments Pain Exacerbated by COVID-19

(22 April 2020 – Australia) Late payment delays for small businesses have become a critical issue as the coronavirus crisis continues apace, resulting in the small and medium sized enterprise (SME) segment to push for legislation to ensure they can alleviate working capital constraints. East & Partners research commissioned by Scottish Pacific Index found SMEs with an annual revenue of A$1-10 million have been hardest hit by delays, waiting up to 66 ‘debtor days’ on average. 

Direct interviews with over 1200 SME owners or senior finance staff for the Scottish Pacific SME Growth Index found the range of payment times (debtor days) varied from seven days to over 4.5 months (134 days). The A$1-20 million revenue SME sector is estimated to have up to A$776 billion annually in outstanding total invoices. This figure is 3.5 times greater than the federal government’s economic stimulus plan attempting to keep the Australian economy ticking over during the COVID-19 shutdown.

“The overall SME average is 56 days, while larger firms larger firms with A$10-20 million in revenue are waiting 40 days to be paid, but as the survey was conducted prior to the COVID-19 pandemic hitting business, its impact is highly like to be dragging payment times out even further. There is a great disparity in how quickly a company is paid, with size making all the difference – the bigger you are, the sooner the cash comes in” Scottish Pacific CEO Peter Langham stated.

“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. 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” Mr Langham added.

“At the extreme, some small businesses are waiting up to four months to be paid and almost one in ten SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report” he said.

“Poor cash flow 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. 

Scottish Pacific, Australasia’s largest non-bank SME funder, including the startup sector, has partnered with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to create a free downloadable Business Funding Guide for business owners. The Ombudsman, Kate Carnell, is lobbying for federal legislation requiring small businesses to be paid in 30 days as standard as a key recommendation in the ASBFEO’s final report for the Supply Chain Financing Review.

“There’s no denying businesses of all shapes and sizes are enduring extraordinary challenges as a result of the Coronavirus crisis, but small businesses are being hit hardest. Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy. We know that if small businesses are paid on time, the whole economy benefits. On the flip side, a lack of cash flow is the leading cause of insolvency” Ms Carnell stated.