cash flow solutionsIn January 2018, Sage released an updated version of their report on the effects of overdue payments on small and medium enterprises (SMEs) titled ‘The Domino Effect: the impact of late payments’. The study, conducted in partnership with plum, surveyed more than 3000 businesses across 11 countries, investigated the impact of late payments on SMEs. Despite a reduction of 25% in late payments in Australia over the 2017-18 financial year, the picture it paints for Australian SMEs is still grim.

According to Sage’s report:

  • “9% of all payments to Australian SMEs are late
  • SMEs spend 5 days per year chasing late payments
  • 7% of late payments are written off as bad debt
  • SMEs spend just under $5000 per year chasing late payments”

Small businesses are most likely to make late payments, closely followed by micro businesses. Medium-sized businesses are the least likely to pay after an invoice’s due date, however, more than 5% of payments made by medium-sized businesses are late. SMEs are the businesses that are most likely to be affected by late payments in Australia and, as the name of the report suggests, this creates a domino effect as SMEs suffering cash flow challenges due to late payments themselves tend to make late payments.

Almost 20% of Australian SMEs reported that they were either impacted by or expect impacts associated with late payments. The top three impacts of late payments were reported to be impacts on investment, impacts on paying suppliers and impacts on annual bonuses.

When asked why payments were late, 36% of customers didn’t give a reason. Of those customers that did give a reason, 12% said that the payment had been submitted but the transaction was still pending and 10% said that they only pay on specific dates regardless of the invoice due date.

Despite the high incidence of late payment, Australian SMEs are often reluctant to chase overdue payments. 29% said the primary reason they didn’t chase late payments was that they didn’t want to risk jeopardising their relationship with their customer. Only 9% reported that they didn’t have the resources required to chase payments and only 8% cited a lack of time.

Cash flow solutions that provide support for SMEs affected by late payments

Invoice trading is a form of finance that’s been widely used to help businesses address short-term cash flow shortfalls. Using this form of finance, businesses can obtain better control over their working capital cycle by converting outstanding invoices into cash as needed. If an SME doesn’t feel confident chasing late payments, invoice trading can help the business weather the late payment.