SMEs suffering major losses over late payment

Study reveals shocking statistic – but insurance can help

SMEs suffering major losses over late payment


By Nicola Middlemiss

A report released this week has revealed the staggering losses being suffered by Australian SMEs – simply because their clients aren’t paying invoices on time.

Xero’s ‘Paying the Price’ report analyses the economic impact of late payments to SMEs and puts the value of outstanding bills at $115 billion a year.

“Late payments are the scourge of small business, and being able to name the staggering figure of $115 billion for the first time gives fresh urgency to solving the problem,” said Xero MD, Trent Innes.

Innes also called on big business and the government to prioritise the issue, saying that it was having huge adverse effects on Australia’s SME community.

“Our research finds that addressing the fundamental inequality of small business carrying $115 billion worth of debt on behalf of big business will deliver a significant benefit of $4.38 billion to SMEs over a decade,” he said.

According to the report, over half (53%) of all trade credit invoices to SMEs are paid late, being settled an average 23 days after they are due.

However, if these invoices were paid on time, it would be equivalent to transferring $7 billion in working capital from large businesses to SMEs. The returned $7 billion would then be used by SMEs to reduce debt or increase investment and output.

“Unlocking this capital for small business to use will give a significant stimulus to the economy,” said Innes. “Faster, predictable payments will generate greater stability and confidence among the small business sector. Small businesses will grow faster, have better cashflow, employ more people and take on more business risk.”

While cashflow problems can prevent businesses from taking risks, two senior industry veterans say the insurance sector has some solutions which can alleviate the stress for SMEs.

IQumulate CEO Raj Nanra pointed to premium funding as a valuable tool for businesses which struggle to take risks due to their financial situation.

“Premium funding helps clients to spread the cost of insurance over a 12-month period, allowing them to better manage their cashflow and grow their business,” he said. “It gives them the opportunity to keep investing in their business and if they need some help for cashflow to pay that premium, premium funding can sort that out.”

Mark Hoppe, MD of trade credit insurer Atradius, says insurance can offer a helping hand to SMEs that are concerned about unpaid or late invoices.

“Trade credit insurance protects businesses when their customers fail to pay and it can help keep an organisation’s cashflow healthy, even when the revenue expected isn’t forthcoming,” he said.

Furthermore, Hoppe says the right trade credit insurance policy can also add significant value to businesses by providing information that helps owners make smarter, less-risky decisions around which customers to work with.

“Trade credit insurance providers can perform due diligence on prospective customers so business owners can determine whether to offer them attractive payment terms or require cash-on-delivery arrangements,” he said. “Clients with us can also make use of our collection service.”

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