Late payment research from Amex and Xero highlights the cashflow burden for SMEs


Coinciding with the anticipated release of the Small Business Ombudsman’s report on its inquiry into payment times and practices, American Express has released research showing mid-sized Australian businesses owe $8 billion in outstanding payments to suppliers, with more than $2 billion currently overdue.

According to Martin Seward, ‎VP, Small & Medium Enterprises at American Express Australia, the survey of 355 CFOs from companies turning over between $2m and $300m per year shows they’re unable to reconcile almost one third (30%) their supplier invoices ‘at least every other month’, meaning the issue of late payment of suppliers is ‘endemic’ amongst mid-sized businesses.

Seward said the issue of late payments was not only impacting suppliers, but could also be costing mid-sized usinesses billions of dollars every year.

“There is no doubt that suppliers rely on timely payment, with many going as far as to offer financial incentives for early payment,” he said.

“In fact, more than half (54%) of Australian mid-sized businesses unlocked $1.84billion in savings last year through negotiating early payment discounts with their suppliers, leaving them open to extra cash flow to reinvest back into the business for research and development or something as simple as staff recognition programs.

“It’s encouraging to see that businesses and their suppliers can both benefit from preferential payment arrangements, but concerning that not all Australian mid-sized businesses recognise the value of timely payment – both to their suppliers and their own business.”

Almost all CFOs surveyed (94%) said they would value the opportunity to pay suppliers on time; however, they cited cash flow pressures as the number one factor when deciding how to pay suppliers. Given the opportunity to extend cash flow for up to 50 days, nearly one third of CFOs (30%) said they would prioritise early payment of suppliers.

“We have seen CFOs who deploy credit as part of their cash flow management toolbox and benefited from the flexibility to pay suppliers early, while keeping capital in their business for longer. Using credit can also offer other benefits, such as reward schemes” Seward said.

“Despite a positive outlook for mid-sized organisations, with 65% of businesses forecasting growth in 2017, cash flow pressures still constrain mid-sized businesses from achieving their full growth potential. In an increasingly competitive economy, today’s CFO will not want to miss out on opportunities offered by effective and efficient cash flow management.”

In related news, cloud accounting provider Xero has released has released the following finding of a survey of more than 500 small businesses to highlight the burden of late payments:

  • Most (86%) want the federal government to do more to address late payments by big business.
  • Four in five (79%) support a government-backed policy to reduce the time it takes big businesses to pay small businesses
  • Their biggest cash flow concerns due to late payments are ability to pay suppliers (38%), the ability to pay staff (15%) and declining profitability (24%).
  • Most (84%) said big businesses have too much negotiating power when it comes to paying invoice – relevantly, while the vast majority of small businesses have payment terms of 30 days or less for their suppliers, many big businesses mandate terms of 60 or more days, with some refusing to pay faster than 120 days after invoice.
  • In terms of the impact of late payments on cashflow, 49% said it hinders growth, 34% said it prevents them from purchasing equipment and one in five said they can’t hire as quickly as they need.
  • Six in ten said they wouldn’t survive more than three months if all invoices went unpaid while 6% said they wouldn’t last a week.

Xero Australia MD Trent Innes said these findings are compounded by the company’s invoice data showing that, over the past six months, one in five invoices payable by ASX 200 companies to small businesses have been overdue by more than 30 days, with more than 3.8 million invoices currently overdue to its own small business clients.

“Many big businesses require smaller peers to pay invoices within seven days, while taking weeks or months to pay their own bills,” he told Dynamic Business. “This inhibits the ability of small businesses to pay suppliers, staff and themselves, plan for the future and, in some cases, it puts them at risk of insolvency. According to our survey, the main reason respondents gave for big businesses holding up payments include red tape and procedures (83%). In addition, 78% said big businesses try to get away with what they can with deferring payments by pushing their weight around.

“A level playing field is one where big businesses abide to the same payment terms as they require of their small business suppliers. It’ll give Australian small business owners a fairer shot at building healthy, sustainable businesses. We strongly believe there’s benefit in a government-backed voluntary payments code to ensure small businesses are paid on time. ”

See also: Call for government to consider UK regs to help ensure big businesses pay SMEs on time