Average invoice payment times could spiral beyond 40 days by Christmas, business finance firm Optipay says, as a tough economic environment clamps down on small business cash flow.
Customer data collected by the invoice finance provider shows the average invoice payment time currently sits at 38 days, up from 31 days in early 2022.
That figure could break the 40-day barrier in mid-December, according to CEO Angus Sedgwick.
A sluggish economy, worrying business insolvency numbers, and debt collection efforts from the Australian Taxation Office (ATO) are all complicating factors, says Sedgwick.
And even seasonal factors like holiday leave — which can keep key decision-makers from approving payments to suppliers — escalate in the months to December.
“There is a bit of seasonal cycle in this, but it’s also just the entire economy,” Sedgwick tells SmartCompany.
“Obviously over the last 12 months, interest rates are high, the ATO has been very aggressive with wind ups.
“Cash is tight in the economy at the moment.”
Rising business insolvencies are a key factor in the cash flow slowdown.
The latest Australian Securities and Investments Commission (ASIC) data shows 2,407 businesses entered external administration or had a controller appointed between July 1 and September 16 this year.
ASIC recorded 2,495 insolvencies between July 1 and September 30 last financial year, putting this year’s tally on track to surpass last year’s September quarter total.
Rising insolvencies means more payment delays and protracted efforts to extract outstanding debts through the administration process.
Continual efforts from the tax office to recoup outstanding debts are also forcing small businesses to make hard decisions.
As the ATO carries on its campaign to whittle down tax debts, Sedgwick says many businesses are asking themselves tough questions about their cashflow and the order they should pay their suppliers.
While Optipay says average payment times could balloon out beyond 40 days, other payment time data suggests some invoice payment terms are actually shrinking.
Large businesses with income over $100 million are required to report their payment times to the Payment Times Reporting Register, a public dashboard designed to promote faster payment times from big enterprises to smaller suppliers.
The Register shows the average payment terms sat at 35.3 days in the last six months of 2023, down from 37.1 days in the first six months of 2021.
Some 69% of invoices are paid within the 30 day window, the Register adds, but 23.9% take between 31-60 days.
And 7.1% take 61 days or more, significantly constricting cash flow for businesses reliant on those invoices to keep their enterprise moving.
The federal government has committed $33.4 million to bolstering the Payment Times Reporting Regulator, the entity behind the dashboard, with the broad goal of making the register a more effective tool to encourage quick invoice payments.
But Sedgwick says businesses too small to report their payment times to the Register are also contributing to lengthening payment times.
“It’s often that other SME that’s the slowest payer, and it’s because they’re waiting [too],” says Sedgwick.
“You might be point four in a six point supply chain, right? So you’re point four, but need point five and six to pay before the money flows through the whole thing.”
“It’s just the knock on effect of whoever the end buyer is not paying on time.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
