While Australians are renowned for their laid-back attitude, recent reports show that small businesses, are the tardiest in paying their bills to other SME’s. This growing culture is producing a self-inflicted cash flow crisis, which is often cited as one of the key reasons 50% of companies go out of business in the first three years.
Key findings of the report include:
- Almost half a million Australian SMEs would employ more people if they could improve their cash flow position. In doing so, unemployment would be largely eliminated in this country.
- Culturally Australian SMEs are prepared to break their word with suppliers to assist their own business.
- Schools have the lowest rate of delinquent debts of any industry in the country, suggesting that teachers are significantly more commercial, and better at managing their debtors, than other industries. Other winners include the health sector and banking.
- Companies in IT, Electricity and Mining suffer the longest wait before their bills are paid.
- Four in five SMEs ask to be paid within one month, but three-quarters do not get paid until up to a month beyond the agreed terms, and an unlucky 3% have to wait more than three months after the due date.
- Contrary to popular belief that big business and multi-nationals treat small business poorly, 85% of debtors to Australian SMEs are actually other SMEs.
- More than 40% of SMEs typically have more than 11 invoices outstanding, collectively worth an average $38,000. Extended across the economy, this amounts to a $76 billion ‘cash flow handbreak’.
Cash Flow is so dire for 38% of Australian that owners have to dip into their personal saving to manage their company cash flow which impacts their ability to pay their housing and other living expenses. This is turn creates a disincentive to hire new staff and makes it harder to pay existing workers. Although there is still the perception that large companies bully smaller ones, the worst offenders for delay payments to SME’s are actually other SME’s, which creates a vicious cycle of debt within the ‘small end of town’.
Only 12% of SME debtors are large corporates and a relatively small 3% are multi-nationals, indicating Australia’s cash flow crisis is domestically created.
Reference: The Invoice Market
As Cash Flow Strategist and professional bookkeepers Accountant Ready Books can assist with identifying your cash flow problems. Once detected we can then implement cash flow strategies to defeat cash flow crisis helping to grow your business with solid cash flow management.
