Small business can’t afford to pay its bills

Small businesses, especially in the finance and retail sectors, are failing to pay bills on time because many are waiting longer to be paid by their customers, new research shows.

The latest Dun & Bradstreet Trade Payments Analysis, which examines the ability of firms to pay their bills on time, found Australian firms across the board averaged 53.6 days to settle their accounts during the June quarter – longer than when they were surveyed in the March quarter.

The number of payments falling within the standard 30-day term dropped 16.5 per cent quarter-on-quarter for all businesses.

At the same time, two-thirds, or 62 per cent, of all trade payments were late during the second quarter. The number of “severely delinquent payments” – those taking 90 days or longer to pay – rose 1.4 per cent over the quarter and 13 per cent over the year.

Small businesses – classified in the research as firms with between one and five staff – are worst affected by cash-flow issues, taking 2.2 days longer to settle accounts. In some cases, small businesses are waiting more than two months to be paid for goods and services, says Dun & Bradstreet director Adam Siddique.

“It is particularly concerning that SMEs are waiting longer to be paid, and as a result are taking longer to pay their own bills,” he says. “Trade credit constitutes a significant and critical portion of non-banking finance. When this is delayed, it withholds millions of dollars from businesses and the wider economy.”

While small business was harshly hit, larger firms managed to reduce payment terms in the June quarter by a day on average. Businesses employing between 50 and 199 staff shed 1.6 days during the quarter to 50.3 days. This was lower than the national average of 53.6 days, which rose by almost a full day.

Publicly-listed firms, usually among the nation’s slowest payers, shed 2.8 days from average payment terms to 54.7 days. Private companies, however, took 0.9 days longer to 53.6 days.

The worst-hit sectors included finance and retail. These segments saw average payment days rising 2.7 days and 1.7 days, respectively, and both now operate under a payment cycle among the highest in the country in almost three months.

Utilities and communications firms also maintain elevated trade payment terms, at 56.7 days and 55 days, respectively. Utilities firms now operate under the longest trade payment terms of any sector, increasing payment terms by an average 0.2 days during the June quarter.

“We have witnessed a number of high-profile failures during the past 12 months, in part a result of cash flow issues related to slowing demand and higher operating costs,” Siddique says. “This is obviously impacting business payment terms.”

He says in tough economic periods, it’s critical for business to remain focused on fundamentals such as cash flow. “A proactive approach to risk and receivables management can often prevent a situation where businesses wait months to be paid,” he says.

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