The Australian government released the prompt payment protocol discussion paper in July 2013. It had the good intention of helping to relieve small businesses from the strain of long payment terms. Four and a half years have passed, and many businesses are still struggling to manage cashflow and are unable to get paid in a timely manner.
A recent Business Monitor survey showed that more than 77 per cent of Australian small and medium sized businesses have been negatively impacted by the late payment habits of their customers. This survey also found that 35% of business owners’ finances were affected, with a majority of these owners not being able to pay bills such as rent and electricity.
As many business professors would say, “Cash is King,” and nowhere is this more true than in the operation of a small business. Managing cashflow is vital for the survival of small businesses, if cash is unavailable, things are bad. Small businesses do not have large cash reserves to fall back on, when a large customer doesn’t pay on time . Wages, bills and the sustainability of the business are all on the line. If small businesses can’t pay their bills, their suppliers also suffer, as do the employees and their households. Of course, this results in negative pressure on the economy as well as increasing stress and anxiety for many business owners.
The late-payment culture of Australia’s largest businesses has a knock-on effect on to a large part of the economy. Some large corporations will frequently take more than 90 days to pay a substantial invoice, despite agreeing to 30 day payment terms; essentially using the nation’s small business as banks. It wasn’t too long ago that Rio Tinto proposed to change its payment terms from 45 to 90 days. They quickly back-tracked from this decision after an outcry from suppliers and pressure from the Australian government.
This delay in payment can spell disaster for a small business. Another issue is that small businesses are often already highly leveraged and thus do not have easy access to additional financing from traditional sources such as banks and other business lenders. This is where cashflow financing can help. Invoice financing for small business is a great way to take control of the business cashflow. By selling the invoice to an investor for a small discount, the business owner or finance manager will know exactly when and how much they will be paid. This kind of service can relieve all the pressure that comes with tight cashflow and give the business a lifeline for survival and growth.