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Small businesses losing up to $7b cashflow from late payments, study finds

Small and medium businesses are losing access to as much as $7 billion a year because bigger companies are not paying their bills on time, according to a study.

And late payments on outstanding invoices, worth $115 billion, create a “domino effect” on the broader economy by tying up cashflow.

Those findings were based on a study of more than 150,000 businesses, conducted by the business software company Xero.

Based on its review of 10 million invoices, large businesses pay 53 per cent of invoices late by an average 23 days, making it harder for smaller businesses to take risks and employ new staff, Xero chief executive Trent Innes said.

“I think there is a bit of a cultural aspect that’s been going for quite some time where big business has that power to set those terms,” Mr Innes told The World Today.

“If we could just get big business to pay small business on time, that would unlock about $7 billion in working capital for small business.

“That’s taking it right down to the grass roots into businesses that are looking to employ that next person.”

The domino effect

The Xero report also found a link between long payment times and slower growth for small businesses, with 46 per cent failing in their first five years.

The report cites the case of Brisbane entrepreneur Deborah Peralta who created Dello Mano, which supplies packaged bite-sized brownies as corporate gifts and consumer purchases.

“When we started out, we were flexible with payments. We lived in fear of scaring off customers,” Ms Peralto told Xero’s researchers.

But Ms Peralta said for large invoices she now asked for a deposit before baking — and in one case she requested 100 per cent payment upfront.

“Recently we stepped up and decided it’s time to step up and quit being scared of asking for payment,” she said.

Carolyn Stebbing of Little Village Creative said that substantial invoices were overdue it had a significant flow-on effect.

“What clients don’t think about is when they pay late, it can affect dozens of other businesses — printers, film companies, contractors — who depend on small businesses like mine for their livelihood,” Ms Stebbing told the study.

Mr Innes said he believed late payments were “the scourge of small business” and the “staggering” $115 billion involved provided fresh urgency to solve the problem.

“We call on big business and government to prioritise this issue,” he said.

“In a period of soft economic growth, encouraging large businesses to pay on time should be a priority for the new Parliament.”

He urged small and medium businesses to tackle late payments by establishing shorter payment terms and to switch to online payments.

From July, the Federal Government will commit to shorter terms by paying small business invoices within 20 days.

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