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A rise in the number of payment disputes could indicate broader cash flow problems, according to an industry advocate.
The office of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has released new data showing an increase in the number of small businesses approaching the industry advocate for assistance in resolving payment disputes.
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Payment disputes accounted for 42 per cent of all assistance cases managed by the body in the 2024 financial year, according to ASBEFO’s most recent quarterly report, an increase on the number of payment dispute cases in FY23 (36 per cent) and FY22 (29 per cent).
ASBFEO data has also found that, over the year, there was a 50 per cent jump in the number of requests for help from small-business owners concerned that a business owing them money had become insolvent or were worried about their own ability to meet financial commitments.
The quarterly report also noted a 4 per cent increase in disputes between small and large businesses, with smaller operations left on the hook when “large businesses refuse to pay within the small business’s payment terms”.
ASBFEO Bruce Billson said payment disputes were often the first sign of cash flow problems, a ripple effect that can easily extend to other businesses.
“Cash flow is the oxygen of enterprise, but difficult conditions mean when one party is late in paying, it can cascade through the supply chain,” Billson said.
The challenging operating environment has left many small- and family-owned business owners vulnerable, according to Billson.
“Cost-of-living pressures for households are cost-of-doing-business pressures for small businesses, such as rising input costs such as wages, energy, insurance and rent – while the Tax Office has resumed its tougher enforcement approach,” Billson said.
“Many small businesses are drawing on their cash buffers to keep their business afloat. Recent surveys have found nearly one in four have no cash reserves, while 18 per cent have less than a month’s cash at-hand to fulfil their obligations.
“The business owner will usually pay themselves last after paying their bills and staff, so slow payment can needlessly amplify the risks of business ownership.”
Amid these findings, the Australian Banking Association (ABA), Chartered Accountants Australian and New Zealand (CA ANZ), CPA Australia (CPA), and the Australian Tax Office have joined together to provide a fact sheet designed to help small businesses struggling with repayments.
“Our small businesses are incredibly resilient, but banks want customers to know they are not alone if they feel like they are struggling to make repayments,” CEO Anna Bligh said, highlighting that there are specialised teams available to help.
SMEs in need of assistance
The concerns about the health of Australian small and medium-sized enterprises (SMEs) come as a new survey revealed that the vast majority of SMEs would appreciate some extra help from the federal government.
According to a survey by business loan comparison platform Small Business Loans Australia, 94 per cent of SME owners think the government could do more to help them face inflationary pressures, wage increases, and drops in consumer spending.
Alon Rajic, founder and managing director of Small Business Loan Australia, said businesses want immediate debt relief rather than assistance in managing obligations, citing ASBFEO data showing in the last tax year almost half (43 per cent) of small businesses were not profitable.
“Business owners need money back in their bank accounts to help alleviate or minimise their debts, not just manage them,” Rajic said.
“This is reflected in our survey, with strong support for more action from the government including measures such as interest rate cuts to business loans and cuts to company tax rates.”
Non-bank lender shift
With SMEs finding the economic environment harder, more are turning to non-bank lenders for tailored support.
According to ScotPac’s 10th annual SME Growth Index report, the majority (90 per cent) of SME owners surveyed said they were open to partnering with non-banks, according to the report, a significant increase on 44 per cent response in the 2018 survey.
Moreover, a record 52 per cent of SME respondents said they planned to use non-bank lenders to fund new business investment, compared to 42 per cent that said they would stick with the banks.
The report cited “easier onboarding process”, “faster availability of funds”, and “peace of mind of not having to borrow against the family home” as the main reasons SMEs opted for non-banks.
Jon Sutton, ScotPac CEO, said the shift could be attributed to the growing awareness of the range of specialist business lending products on the market.
“Most owners who are planning to invest in their business want quick and easy access to working capital, preferably without having to put up their home as collateral,” Sutton said.
“At ScotPac, we understand that time is a business owner’s greatest asset, and sometimes 24 hours can be the difference between seizing or losing a new opportunity.”
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