Most small business owners will know that cash flow can make or break your enterprise — even a solid bank of existing clients and lots of future work in the pipeline mean little if invoices are not paid and there is no cash coming in.
A recent report commissioned by PayPal and Intuit shows that Australian small businesses are feeling the burden of unpaid invoices, and at the time of the research were owed $26 billion by their customers.
The Late Payments Study authors spoke to 508 Australian small businesses about their payments-related pain points and the impact on their cash flow. They found that the average amount owed to each small business contacted for the study was $13,200, with more than a quarter resorting to further borrowing to cover their own expenses. Others delayed rent or mortgage payments to bridge financial shortfalls.
The research found small business owners are spending an average of 12 days a year chasing unpaid invoices. The report found (perhaps unsurprisingly given the firms commissioning the study) that payments could be speeded up and cash flow improved if more businesses implemented electronic payment systems. At the moment, less than a third do, the study said.
It was also found that as businesses increase in size so too does the total value of outstanding invoices, ranging from $6,000 where the owner works alone to $22,000 in businesses employing three or more staff.
Other salient points were:
- only 12% of small businesses request upfront payment, with two thirds (67%) taking up to a week to issue an invoice and one in 10 invoicing more than a week
- 27% of small businesses have been forced to take on loans or credit to pay suppliers and wages
- 24% of small businesses that don’t insist on upfront payments wait more than a month to be paid
- 29% that don’t insist on upfront payments say reducing the time taken to get paid will enable them to run the business more effectively.
And to top off the bad news, the cash flow issue is affecting businesses that can least afford it. Recent ABS figures on small business closures showed that business exit rates were highest for businesses with annual turnover of less than $50,000 and lowest for businesses with annual turnover of $2 million or more.