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Writer's pictureAustralia Industry Expert

Late customer payments creates cash flow stress on small business

Morshona live and breathe small business and stem great satisfaction in guiding clients in the mid-market. Small business is the dynamo of the Australian economy, contributing approximately 33 percent to GDP.


Founders of Small and medium-sized enterprises (SMEs) are often innovative thinkers who are not afraid to take risks. We have huge respect for the way they develop what started out as a dream, a hobby or part-time project into a prosperous enterprise.


Cash flow has always been a major problem to smaller enterprises and late payments have had consistent negative impact.


The Morshona Small Business Insights gives some cause for confidence, as the trend towards late payments appears to be decreasing. According to the figures, derived from the SMEs in the database, the average number of days for enterprises to be paid (based on 30-day invoicing), was 38.2. This is down from the same time last year, when 45 days was the average for small businesses to be paid.


There are also provincial variations: the ACT pays the quickest, with average payments occurring at 31 days; SA is the slowest, with payments taking almost 39 days.


Morshona’s report echoes trends announced recently by the Australian Small Business and Family Enterprise Ombudsman. Data released from the office in August showed that late payments fell during the second quarter of 2019 by 4.6 percent, while prompt payments rose sharply.


On average, just over two-thirds or 67.8 percent of Australian businesses paid their bills on time. However, just 12 percent of ASX-listed companies paid on time, compared with almost 34 percent of non ASX-listed companies.


Great news then, but there is still cause for concern. Not only do late payments squeeze smaller companies so tightly that many will not survive, but they illustrate a particularly crafty form of power play.


The commercial and psychological imbalance of power between larger companies putting pressure on smaller ones, which have little or no option in such situations, is a well-known phenomenon.


Many SME’s just cannot cope with a lack of cash flow, especially if they do not have stable and reliable sources of capital. Late payments result in lower working capital and ultimately poorer profitability, not to mention increased anxiety and stress amongst the owners of the business.


It also creates a poor business environment, making it tough for the mid-market to thrive.


What can SMEs do in such a situation?


The first thing is to obtain the right advice on how to manage their circumstances, not only from a legal perspective but more practically from a commercial position.


Business owners need to resolve how to manage cash flow implications;

  • Where to source other forms of capital;

  • Where value can be locked into the business

  • How it can be liberated, and;

  • In the worst-case scenario, how to plank off insolvency.


With the right strategies in place, late payments need not sound the death-bed for an enterprise. Hopefully, a change of mindset on the attitude of big business towards the mid-market will also follow, which will importantly add to the SME sector’s endurance and positive contribution to Australia’s economy.


For more information on managing your cash flow, talk to our Morshona Advisory team





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