Late payments lead to cash flow issues but worst of all they lead to poor business performance.
Poor cash flow is one of the main reasons 60% of small to medium sized businesses in Australia cease operations within their first few years.
MYOB in their SME Snapshot Survey found that accommodating late payments created a bad cash flow cycle that can be fatal.
CEO Tim Reed, shared the results of their survey indicating -
77% or more of Australian small to medium sized businesses said they had been negatively impacted by customers not paying on time
52% said delayed payments heightened stress and anxiety levels
35% reported personal finances were affected
32% said not getting paid on time impacted their ability to cover operational expenses
The answer for many is to chase those late payments but in general as found in the Ombudsman report, SMBs are too busy focusing on the operation of the business, growing the business and generating new invoices.
The report indicated the time spent chasing late payments was less than an hour per week for 46% of SMBs and two to five hours per week for 41% of SMBs. The report implied that SMBs were hesitant to even send stern letters of demand, engage debt collectors or begin legal proceedings for fear of breaking financial relationships.
Poor cash flow can be a slow death for many SMBs as Xero's Paying the Price report indicates that small businesses that are paid slower than average, grow revenue about a third slower than those paid faster than average.
Xero points out that longer wait times, directly correlate with poorer business performance. Problems arise for SMBs when late payments cause them to bear the cost of goods or services provided as well as the continuing overheads of running the business.
That financial pressure is often caused by the enterprise side of business as large companies use SMBs as credit facilities extending their own cash flow by adhering to long held beliefs that late payments are just part and parcel of doing business. The Xero report also points out, that if big business paid SMBs on time, SMBs could gain up to $4.38B over ten years creating working capital for expansion and growth.
The report also indicated a positive net economic impact because the positive effect on SMBs is greater than the negative effect on large businesses.
The case for on time payments makes sense for all involved.