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Late payment times have meant organisations facing a challenging operating environment are being further hindered.
CreditorWatch, a credit reporting agency that manages the credit files of all commercial businesses in Australia, has revealed that over 80 per cent of businesses surveyed have experienced late or overdue payments in the last six months.
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The agency found that approximately four in 10 (37 per cent) of those surveyed stated that a wait of over 60 days to be paid had become a common occurrence.
CreditorWatch said that approximately two-thirds of enterprises (66 per cent) found they had less bargaining power with larger businesses, resulting in organisations “struggling with power imbalances when negotiating contracts”.
Patrick Coghlan, CreditorWatch chief executive, said small businesses were disproportionately feeling the brunt of late payments.
He stated: “Late payment rates for small business are, on average, three times greater compared to large businesses, which is a huge problem considering they are operating on much tighter margins.”
Mr Coghlan added that moving into the holiday period, a time that Australian businesses experience on average a 20 per cent drop in revenue, coupled with ongoing economic challenges and traditional closures, the possibility of late payments was significant.
“With the incidence of late payments and payment defaults increasing over the Christmas, new year period, businesses should be taking proactive measures to follow up on outstanding invoices before the break,” he urged.
Speaking to The Adviser, Mr Coghlan encouraged brokers to ensure their clients have correct “processes and systems” in place as it will “make it far easier for their clients to collect outstanding debts”.
He added that while ensuring clients were collecting from customers to maintain a healthy cash flow, brokers should also invigorate clients to conduct “upfront due diligence as well to avoid providing goods or services to bad businesses”.
The credit reporting agency revealed that businesses in construction, manufacturing, information, and media and telecommunications had the highest proportion of late payments at more than 45 days.
CreditorWatch emphasised the importance of following up on payments, revealing that payment defaults are a leading indicator of future business insolvency, with a single default registered for a business indicating a 24 per cent likelihood of failure, which escalates to 62 per cent when a business accumulates three or more defaults.
In light of the government confirming earlier last week that it would place “increasing pressure” on big businesses to pay invoices on time, Mr Coghlan was supportive of the measures.
“I think that it’s good to hear. Bigger businesses typically can afford to pay small businesses, but I guess the proof will be in the pudding whether it actually has an impact or anything actually takes place,” he stated.
As part of the government’s action on payment times, it also committed to improving payment times by highlighting the best and worst payment performers along with ensuring payment times are considered in the development of government reforms and policies, including unfair trading practices reforms, e-invoicing, and government procurement.
When the actions were announced, the Minister for Small Business Julie Collins MP declared: “This is a matter of fairness – big businesses should not take advantage of Australia’s 2.5 million small businesses by failing to pay them on time.
“I will work closely with the Treasurer and other ministers who have important responsibilities for the successful delivery of the Albanese government’s response.”
[Related: Big businesses that fail to pay will be named and shamed]
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