SMEs burdened by lengthy wait for payments

Independent research conducted on behalf of Scottish Pacific has found that the average amount of time that small businesses are required to wait for payment is 56 days, with smaller businesses experiencing even longer wait times for payment.

The research was conducted on 1,200 SME owners or senior finance staff members, across a representative selection of industries across Australia.

According to the results, the range of payment times (debtor days) for SMEs ranged between seven days and 134 days, and affected smaller businesses at a disproportionately higher rate.

While overall, SMEs waited on average 56 days after invoice to receive payment for goods and services, for business earning between $1 million and $10 million annually, the wait extended to 66 debtor days.

Further, for larger businesses earning between $10 million and $20 million, the wait time for payment fell down to 40 days.

The research also found that regardless of annual turnover, SMEs across the board have almost a third of their revenue tied up in outstanding invoices, with 16 per cent in overdue invoices (outstanding beyond 90 days).

Scottish Pacific CEO Peter Langham stated: “Money that could be used to expand revenue and invest in growth is being tied up for too long, as SMEs struggle to be paid within a reasonable timeframe.”

“This is a significant burden to bear and reinforces the importance of reducing payment times, in particular for SMEs struggling to source new funding or to refinance their existing borrowings.

“There is a great disparity and we see as businesses become larger they get paid more quickly.”

According to Mr Langham, each SME has, on average, $1.55 million in overdue invoices beyond 90 days, and others struggle to make sense of their financials, due to unreliable payment times.

“At the extreme, some small businesses are waiting up to four months to be paid and almost one in 10 SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report,” he said.

The research follows on from public calls by the Australian Small Business and Family Enterprise Ombudsman Kate Carnell, for all suppliers (regardless of size) to be paid within 30 days of invoice.

The ombudsman has made the call for fairer treatment of small business suppliers by large corporations utilising their goods and services, following on from its review into the use and abuse of supply chain financing against small businesses.

The final report into the review is expected by the end of this month.

[Related: ANZ increases credit limit for timely SME funding]