If you’re a small business, it’s likely you are constantly feeling the pressure when it comes to cash flow.
Often, this is because of the lag between getting a job done and being paid for it, particularly if you are a supplier in the manufacturing, retail trade or construction sector.
Some figures recently released from the Australian Small Business and Family Enterprise Ombudsman highlight just how big this problem is.
Apparently, almost one in four big businesses takes more than 120 days to pay their small business suppliers. This is according to analysis using data from the Payment Times Reporting Regulator.
The Ombudsman Bruce Billson has described these figures as “appalling”, saying that the big businesses that are making their suppliers wait four months to be paid “can’t be serious”.
Payments by the numbers
Data from 7000 businesses, many with a turnover of more than $100 million, revealed that seven out of 10 big businesses failed to meet the 30-day payment goal set by the Business Council of Australia.
Figures also showed the following:
- 23% of big business take more than 120 days to pay their small business suppliers.
- 9% take between 61 and 90 days to pay.
- 37% take between 31 and 60 days to pay.
- 18% take between 21 and 30 days to pay.
- 13% pay their bills in fewer than 20 days.
The data also showed that while two-thirds of big businesses adopt standard payment terms and aspire to pay within 30 days, fewer than one-third actually meet that ambition.
Why the wait?
There are a few reasons why bigger businesses can take so long to pay and why they often pay bills several days or close to two weeks late:
- They don’t think their providers will be able to find other clients.
- There are few consequences for late payments (it’s expensive to send debt collectors and time-consuming to take legal action)
- Invoices have to follow a more complicated process on their way to being approved and paid.
- Invoices are not forwarded to the right people, or someone leaves the business, and the invoice is never sent to the right place.
- The business is using its small business providers as an interest-free overdraft facility.
How to get paid
It isn’t always possible but one option if you have clients who are always late when it comes to payments is to replace them with other clients who can give better terms and stick to their promise.
Upfront deposits, regular instalments or monthly direct debits are other options to explore, depending on your business model and the flexibility of the client.
It’s also worth making sure you have all the right details when you send the invoice. Sometimes, if a company doesn’t have the information it needs, it will bump the payment down to the next pay run.
If you have a contract coming up for review, you may be able to reduce the payment terms or at least question why your client needs so much time to pay its bills. You could also explore adding interest on the cost of overdue bills (check with your legal team to ensure you can do this the right way).
One option is invoice finance, which gives you a percentage of the money you are owed within days of filing the invoice. This can be a lifesaver when it comes to cash flow and the beauty of an invoice finance arrangement is that it is flexible. So, if you need $200,000 to cover invoice costs one month and $400,000 the next, you’ll be able to get it (so long as you have approval for the higher amount as part of your agreement).
The drawback of invoice finance is that there are fees involved.
Another option is to create a system that gives you better control around cash flow. Speak with your accountant about how to get this essential part of your business running smoothly.
Want help to get paid sooner and stop cash flow stress? Speak to Crest Accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
