Late payments hit small business with triple the force
Small business is disproportionately feeling the brunt of late payments according to CreditorWatch data. Late payment rates for small businesses are on average three times greater compared to big business.
The stark difference in payments rate reflect the challenges small businesses face enforcing payment terms and collecting on payment arrears, and the willingness of some businesses to treat smaller suppliers as an interest free bank. According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) one in four big businesses are taking more than 120 days to pay small business customers with just three in ten paying within the first 30 days.
Payment arrears have been slowly trending down across all industries but continue to be a problem in the construction industry due to inherent payment structures that incorporate delayed payments for projects. CreditorWatch data showed 11.6% of small construction businesses had payments that were 60 days or more in arrears, compared to just 2.3% of large businesses.
Small businesses operating in the Transport, Postal and Warehousing sector, and the Accommodation, Food and Beverage Services sector have been the second and third hardest hit by payments that were 60 days or more in arrears.
Trade payments to big vs small businesses
Patrick Coghlan, Chief Executive Officer of CreditorWatch said, “Small businesses are already tackling high inflation, high interest rates, supply chain issues and labour shortages, and the last thing they need right now are lengthy payment delays. Businesses need to ensure they are getting paid on time to ensure they can pay their own liabilities and have sufficient working capital to maintain their operations and grow. With fewer resources at their disposal to collect and chase payments, small business should consider automated credit risk management solutions that can help reduce incidences of delayed payments.”
Bruce Billson, Australian Small Business and Family Enterprise Ombudsman said, “Nearly one-quarter of big businesses taking four months or more to pay their bills is just not acceptable and there is little sign of improvement by the worst performing businesses. This needs to be taken more seriously. Finance is the oxygen of enterprise. Cash flow is vital to these small and family businesses. There is abundant scope for big businesses to lift their game and they should.”