Small business cash flow crisis costing Australian economy $76 billion
AUSTRALIA’s two million small and medium sized enterprises (SMEs) are drowning in a sea of unpaid customer bills, with $76 billion worth of outstanding invoices crippling their ability to grow, new research has found.
If the problem can be fixed, up to half a million jobs could be created, reducing Australia’s unemployment rate to almost zero.
OptiPay’s SME Cash Flow Crisis Report shows that Australian businesses are perpetually owed on average $38,000 each, with corporate customer excuses ranging from ‘lost in the system’ and ‘in dispute’ to ‘being reviewed internally’ and ‘being processed offshore’.
Cash flow is so dire that more than a third of Australian SMEs have to dip into their personal savings to manage their company cash flow, which impacts their ability to pay their housing and other living expenses.
This in turn creates a disincentive to hire new staff, and makes it harder to pay existing workers.
OptiPay CEO, Angus Sedgwick, said the findings had important implications for all Australians, as small businesses are the engine room of the national economy, employing seven million people or 70 per cent of the entire workforce.
“Almost half a million small and medium sized businesses say they would employ more people if they could improve their cash flow position, reducing Australia’s 715,000 unemployment queue to 200,000 people or fewer,” Mr Sedgwick said.
“That equates to an unemployment rate of about 1.5 per cent, or the lowest in the developed world.
“Having an additional 500,000 Australians in work would in turn take pressure off federal public spending and usher in a new era of national productivity growth, putting the country on a path to a more sustainable fiscal future.”
Key findings of OptiPay’s SME Cash Flow Crisis Report:
- Schools and health services have the lowest rate of delinquent debts of any industry in the country, suggesting that teachers and doctors are significantly more commercial, and better at managing their debtors, than other industries.
- Accounting, financial services, agriculture, construction and professional services companies also fare well.
- SMEs in hospitality and tourism, real estate services, manufacturing, advertising, transport, mining, utilities and IT suffer the longest wait times before their bills are paid.
- More than 40 per cent of SMEs typically have more than 11 invoices outstanding, collectively worth an average of $38,000.
- Extended across the economy, this amounts to a $76 billion ‘cash flow handbreak’.
According to the Australian Bureau of Statistics, half of all businesses go out of business in the first three years of operation1.
And according to the Australian Securities and Investment Commission, poor cash flow is cited as a factor in 40 per cent of business failures2.
One of the most striking findings of this report is that while late payments cost companies money, it is the hidden cost in time that is the most revealing.
On average, 46 per cent of companies have to ask twice or three times for their bills to be paid by errant corporate customers.
Extraordinarily, in 3 per cent of cases, companies are forced to demand payment five or more times.
This raises questions about how long peer-to-peer business relationships can last before they begin breaking down.
Mr Sedgwick said that contrary to popular belief that big businesses and multi- nationals treat small businesses poorly, small businesses were actually the tardiest in paying their bills to other SMEs.
“While Australians are renowned for their laid-back attitude, some businesses are having to ask for payment up to five times over several months, indicating that a new culture of ‘corporate selfishness’ has developed across Australia,” he said.
“This means that Australian SMEs are prepared to break their word with suppliers to help their own business.
“Although four in five Australian businesses ask to be paid within one month, three- quarters of them have to wait up to two months, and an unlucky 3 per cent have to wait more than two months after the due date to be paid.”
Adam Connolly, Apollo Communications, 0417 170 084
Jasmine Hogg, Apollo Communications, 0422 834 912