Small businesses handed late payment lessons

Small businesses have been advised of how to combat late payments following research that shows a third of Australian firms don’t honour their invoices on time.

Research by the Atradius Group found that 46% of Australian businesses delay payment without prior negotiation. The survey of 152 Australian companies was part of a global research project that involved more than 3,900 firms across 22 countries.

Although late payment is still rife, Atradius said that the situation has improved from last year. On average, Australian businesses are paying their suppliers nine days faster and overseas customers 11 days faster than in 2009.

However, Australian firms are still paying their bills two days late, on average. Firms that export ranked Japan as the best-paying overseas customers, followed by New Zealand. US and Chinese customers were considered the worst.

The problem of late payment has a knock-on effect to other businesses and can force small businesses into severe cashflow problems and even bankruptcy.

David Huey, managing director of Atradius in Australia and New Zealand, says that start-ups and small businesses face several challenges when compared to their larger counterparts.

“SMEs often have a problem with cashflow management, rather than ability to pay,” he explains. “They are often slaves to one big customer, so if they have a 60-day payment time they have to accept that.”

“Start-ups aren’t blinded by 20-year personal relationships, but at the same time they’ve got to replace that with good research.”

“Don’t be shy about asking for financial details and have strong credit procedures. Also realise where you sit in the supply chain – if you sell parts to a company that exports, then you are in exporting.”

“We find that start-ups get into trouble by rushing into a market and not having processes around payment. It’s one of the main reasons we see so many insolvencies among companies under 12 months old.

“You may have the most innovative product out there, but it’s no use if you can’t get paid for it.”