Sydney, 15 August 2011 – Almost one in two small business decision makers report that they have experienced overdue customer payments in the past 12 months and the majority (42%) feel that their customers are resorting to excuses for slow payments according to the Bibby Small Business Barometer by debtor finance provider Bibby Financial Services.
Conducted on over 200 small businesses in Australia (excluding retail) at the end of June 2011, the survey found that the consequence of late payments was significant with 25% of small businesses experiencing serious cash flow shortages in the past 12 months.
According to Greg Charlwood, Managing Director of Bibby Financial Services, "Slow payment is a serious problem for small businesses in Australia with many struggling to meet liabilities on time and many contending with non-payment," he said.
Bibby’s findings are parallel to Dunn & Bradstreet’s recent Trade Payment Analysis for the June quarter 2011, which found the number of ‘severely delinquent’ payments (90 day or more overdue) jumped by almost 20 percent compared to 12 months ago. The report found smaller firms have struggled the most over the last 12 months, with payment terms blowing out by an average of two days compared with 12 months ago.
According to the Bibby Barometer over half of all small businesses offer early settlement discounts to encourage prompt payment. Among those that do, a discount in the range of 1 - 4% is most common. However despite the attractive incentive, 30% of those that offer early settlement discounts find them to be ineffective in encouraging the prompt payment of invoices.
The survey found 52% of small businesses that deal with big companies and clients are frustrated with slow payments and when considering outlook for payments terms, small businesses remain pessimistic.
"Thirty-eight per cent of small businesses are expecting the length of time they must wait to be paid to increase further in the coming quarter, which will no doubt place considerable pressure on cash flow management," Mr Charlwood said.
"In addition to slow payment terms, other key challenges identified by small businesses in the months ahead include rising interest rates (30%), reduced consumer spending (30%), increased staff wages (29%) and increasing fuel costs (28%). The combinations of these factors suggest tough economic conditions in the future for small businesses," he said.
As many as half of small businesses reported that cash flow is now more difficult to manage than it was 12 months ago and a key contributing factor to the cash flow problem is the length of time that small businesses must wait to be paid.
"Cash flow is considered the main obstacle to expansion by small business decision makers and debtor finance is one of the most effective ways small businesses can increase cash flow," Mr Charlwood said
Debtor finance, also referred to as invoice discounting or factoring, operates by turning unpaid invoices into cash almost immediately. Unpaid invoices or receivables are sold to a discounter who converts 85% of the value of each invoice into cash within 24 hours. Once payment has been received on the invoice the remaining 15 per cent, less a service fee is returned to the client.
Almost one in two small business decision makers report that they have experienced overdue customer payments in the past 12 months and the majority (42%) feel that their customers are resorting to excuses for slow payments according to the by debtor finance provider Bibby Financial Services.
Since the onset of the global financial crisis (GFC), one in four small businesses have considered debtor finance as a way to manage cash flow, the Bibby survey found. Those with 10-19 employees and annual turnover of $1 million or more are more likely to have considered debtor finance.