Managing the Debt Drain
The critical issues for small business
February and March are traditionally the worst cash flow months for small business – the Christmas rush is over, the Business Activity Statement is due, and payments slow down with a dip in consumer spending. You might be ok but your customers could be under pressure and often whoever wields the most influence gets paid first.
You might be ok but your customers could be under pressure and often whoever wields the most influence gets paid first.
No one likes a late payer and Government measures tackle the small business debt issue from different ends of the spectrum.
We take a look at the issues and their impact on business, and what you can do about managing obstinate debtors.
Why big businesses don’t pay small business on time
At the other end of the spectrum is the Payment Times and Practices Inquiry by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). The inquiry’s issue paper reveals that collectively, Australian small businesses are owed around $26 billion in unpaid debts at any one time. In the last financial year, late payments have increased for six out of ten SMEs with one in four businesses experiencing an average payment delay of 31 to 60 days past agreed terms.
Debt plays a significant factor in a business’s cash flow and survival. If larger businesses don’t pay smaller suppliers within the terms of trade, the small business often has to resort to external funding to manage the cash flow requirements of the business.
The inquiry is looking at options to improve the payment times of large business. Some of these solutions are already in play in some States such as a requirement for large projects to use supply chain finance where project bank accounts hold funds in trust to ensure supply chain participants are paid.
Other solutions are in the ‘naming and shaming category’ where large businesses would be obliged to report their current payment times or for smaller businesses to report late payments.
The inquiry is expected to deliver its final report to Government in March 2017.
