Small suppliers being squeezed by slow payments

Ian Boyd, general manager ANZ at GoCardless, said small businesses reported waiting longer for payments than they were 12 months ago. He warned that this was squeezing the margins of small and medium enterprises (SMEs), with many forced onto credit cards or loans to bridge cash flow gaps.

In its latest update, the PTRR showcased its public register of ‘fast small business payers’ – a subset of businesses that consistently paid their small business suppliers promptly. It noted that most entities were not fast small business payers.

Boyd said that while this positive reinforcement was welcome for large businesses that paid their suppliers on time, late payers should also be named and shamed to ensure accountability.

“We’ve seen the Payment Times Reporting Regulator’s (PTRR) findings and while positive reinforcement is very nice, negative publicity for the biggest offenders may be what it takes to get real change,” he said.

GoCardless’ recent Pursuing Payments report, which surveyed over 500 Australian SMEs, found that 27 per cent of SMEs estimated that they lost up to $6,000 annually due to late payments. 

A further 8 per cent estimated they lost $6,001 to $12,000, while 11 per cent believed they lost up to $30,000 annually due to late payments.

It also found that 42 per cent of Australian SME leaders felt uncomfortable chasing customers up for late payments, with 29 per cent worried about coming across as rude and 27 per cent not wanting to upset their customers.

Boyd warned that late payments had knock-on effects across the economy, with some SMEs passing late payments on to their own suppliers. 

“The knock-on effects for our economy are serious. More than a third of SMBs have been forced onto credit cards or loans just to bridge cash flow gaps from late payments alone, effectively paying interest on money they're already owed,” he said.

“When small businesses are losing an average of 78 hours a year chasing invoices instead of serving customers, that's productive capacity being drained from an already stretched economy.”

GoCardless encouraged SMEs to explore more automated payment systems, to minimise friction and awkward confrontations when chasing up late payments. 

They suggested firms use a payment method that reduced or eliminated the onus on the customer. Furthermore, they said that avoiding card payments and other methods with high failure rates could help ensure payments went through smoothly.

When dealing with suppliers with lower willingness to pay, GoCardless suggested SMEs should negotiate payment terms up-front, automate payment collection and retry processes to cut out the necessity for awkward conversations, and use new technologies that automate payments.

“Automating payment collection removes the awkward conversations and manual follow-ups that see so many invoices slip through the cracks,” Boyd said.