A new report from Xero, the global small business platform, has revealed that half of all trade credit invoices are paid late and the value of outstanding, late payments to Australian small businesses is $115 billion annually.
“Late payments are the scourge of small business. [This report] gives us a fresh urgency to solve the problem,” Xero Managing Director Australia and Asia Trent Innes said.
Research findings reveal solving the problem would see small and medium businesses (SMBs) benefit by $4.38 billion over 10 years.
The cost of late payments
The report finds that 53 per cent of all trade credit invoices to SMBs are paid late, being settled an average 23 days after the due date.
The report reveals that if these invoices are paid on time, it will be equivalent to transferring $7 billion in working capital to SMBs. This can be used to reduce debt or increase investment and output.
It is estimated this will deliver a $4.38 billion benefit over 10 years to the small business sector.
Allowing for extra costs for large business, it has been said that this will still deliver a net economic benefit to the Australian economy of $2.52 billion over 10 years.
Impact on business growth
The report has also found that SMBs that are paid more slowly than average have a third lower revenue growth compared to those that are paid faster.
This is said to have a domino effect across the economy – SMBs that are paid slower are said to pay their suppliers eight days later than those paid faster on average.
“In a period of soft economic growth, encouraging large businesses to pay on time should be a priority for the 46th Parliament,” Xero Small Business Advocate Angus Capel said.
