The Domino Effect of Late Payments on Australian Businesses

by | Jul 19, 2017

The subject of late invoice payments has dominated the news heavily during the last 12 months. And with good reason! Many large businesses are taking advantage of smaller organisations and not paying within the terms of their agreement. This can be frustrating for businesses who are struggling with debt and limited cash flow.

Poor cash flow can limit growth

A slow cash flow can limit business growth causing major problems to both the business and the staff. Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, has been extremely communicative on this subject and believes that something must be done to aid small businesses around Australia.

The summary of findings from the Payment Times and Practices Inquiry states that 12% of firms lose more than 6 hours per week chasing late payments. The review also claims that based on an average 30-day payment term, one in two businesses report that 40% of their bills go beyond the invoice terms and 20% said they were paid beyond the two-month mark.

Improving your cash flow

As a small business owner, what can you do? Firstly, it is important that you negotiate the terms laid out by larger businesses. Endeavour to contact them as soon as the payment is late. Even if it is an oversight on their part, early contact can immediately rectify the issue. Effective communication will see the invoice being paid sooner rather than later. With just shy of 50% of businesses claiming that $20,000 is due in late payment, it is no small matter. Even worse, 14% of companies claim that they have at least $100,000 in late debts owing. This can be likened to putting a choker on an organisation. It can dramatically limit its future growth and potential. It can also have a run-on effect to other businesses around them.

Late payments can affect the whole chain

Unfortunately, one late payer can influence the entire supply chain, and it is the smaller fish at the bottom of the pond that suffer. Like a domino, when one business fails to pay, everyone is affected. A small business will be unable to pay their personal suppliers on time and so on and so on down the line. This knock on effect can also cause poor customer service leading to further money issues. Problematic cash flow can result in issues such as anxiety, stress and burnout. Worrying about debt is energy zapping, and late payments can adversely affect the mental well-being of all business owners.

Ensure that your communication channels are continuously open with your clients and define your payment terms at the outset. If a debtor is consistently late with their payment, then it might be worth sending them another copy of your terms as a reminder. If you are yet to put a cash flow forecast into place, then now is the time. Knowing what is coming in and going out is a timely exercise that will allow you to keep on top of those late payments.

Has the situation reached crisis point?

You cannot read a business magazine or online journal without seeing the issue discussed to some degree. It is having a detrimental effect on the Australian small business industry as a whole. In the long-term, it will only lead to closures, insolvency and bankruptcy if something is not done.

In a bid to improve the situation, the Business Council of Australia (BCA) has come up with an initiative they call the Australian Supplier Payment Code. The initiative will allow companies to sign up and show their commitment to paying their suppliers within a 30-day period. The BCA claims that the payment code will “in some cases… more than halve payment times.” This is great news for businesses nationwide and will do away with large businesses that look at smaller companies as an alternative financial loan.

While Carnell calls the voluntary code a “soft measure”, it is a step in the right direction. The code plans to focus on such issues as timely payment, clear payment procedures, better invoicing and payment practices and improved guidelines for payment disputes. A soft measure, or not, it seems that Australia needs systems like this put in place if the larger businesses are continuously going to take advantage. It is the smaller companies that are struggling with strained cash flow limiting profitability and growth. Australia – we can do better!

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Sophie has the spirit of the Entrepreneurial Business Owner! Whether she is running a successful single family website, creating a product for small business owners or running her own bookkeeping agency she is always right on track as to what small business needs. If you want to speak to someone who not only knows what business owners are going through-she also does something about it- then don’t miss out, connect with Sophie! She is someone who can not only think outside the square- she has true strategic thinking; which is often spoken about but is rarely truly placed into action.
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Sophie is an amazing business woman. She is able to take the complexities of business and break them into manageable pieces for small and home based business owners to work with. She’s clever, creative, supportive and very generous. She’s the reason that so many small businesses are doing so well. If yours is a small or home based business then Sophie is someone you need to know.
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Sophie is efficient, direct and gets the job done. She responds quickly, keeps me updated and has a way of simplifying things and making my life easier. She is all about efficiency and that’s what makes it great to work with her, I highly recommend her to anyone who wants someone to efficiently look after their books and she is great value for money too.
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Kristy Smith
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Sophie is an incredibly savvy business owner, for whom I have great respect. She has always been very clear and detailed in her instructions, is always very focused on her business objectives, and displays a business model that you can aspire to as a small business owner. I have no hesitation is recommending her work at The Accounts Studio.
I have had many a chat with Sophie on the networking circuit. Sophie has a strong profile and reputation within business circles and I wouldn’t hesitate to recommend her to any soho needing direction, support and encouragement. I have a passion for educating small business myself and wholeheartedly support Sophie in her endeavour to actively reduce costs for those who may be unintentionally making uninformed decisions relating to business management. Many business owners are unnecessarily outsourcing tasks which are misdirected or can be achieved inhouse.

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Gai Hook
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I have had many a chat with Sophie on the networking circuit. Sophie has a strong profile and reputation within business circles and I wouldn’t hesitate to recommend her to any soho needing direction, support and encouragement. I have a passion for educating small business myself and wholeheartedly support Sophie in her endeavour to actively reduce costs for those who may be unintentionally making uninformed decisions relating to business management. Many business owners are unnecessarily outsourcing tasks which are misdirected or can be achieved inhouse.
I’ve worked with Sophie as a contributor to Confessions of a Mumpreneur – a fantastic book that she dreamt up, edited and produced. Apart from producing fabulous books that help so many others realise their entrepreneurial dreams, Sophie is an astute business person who is making her mark on her own terms. Watch this space – I’m sure we’ll see and hear a lot more from Sophie Andrews in the years to come.

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2017-10-13T09:50:01+00:00

Jennifer Dalitz
Gender Diversity expert, Career Coach, Award winning blogger on women, work & leadership @ www.TheSheEOBlog.com

I’ve worked with Sophie as a contributor to Confessions of a Mumpreneur – a fantastic book that she dreamt up, edited and produced. Apart from producing fabulous books that help so many others realise their entrepreneurial dreams, Sophie is an astute business person who is making her mark on her own terms. Watch this space – I’m sure we’ll see and hear a lot more from Sophie Andrews in the years to come.