Small Business Borrowing Rises For Every Day That An Invoice Payment Is Late

Xero’s latest Small Business Index Australia Update shows a one-day delay in receiving payment for an invoice means a small business borrows more that quarter 1.1% money to smooth cash flow.

The research underlines the importance of keeping track of payments and chasing up the outstanding and overdue invoices. If we consider the rising interest rates and persistent inflation, delayed payments leading to an uptick in borrowing from the bank to cover debts is concerning.

The Small Business Index pulls anonymous and aggregated transaction data from the small businesses who use Xero’s accounting platform to track the performance of the small business economy. The focus areas are on sales, jobs, wages, time to be paid, which combined form the overall index figure.

Source: Xero Australian Small Business Index

In June, the average time for small businesses to be paid was 19.9 days, a lower than usual figure attributed to the impact of customers paying their invoices for the end of financial year.

The time small business waited to be paid averaged 23.0 days in the first five months of 2023, compared to 23.1 days in 2022. On average payments were made 6.8 days and 6.5 days late respectively over the same two time periods.

In spite of this, a rise in late payment times puts pressure on your business’ cash flow, as the uncertainty of how long you need to wait to be paid impacts your decisions on investments and hiring. It is critical that business owners regularly monitor and improve their payment processes to ensure that it is as easy as possible for customers to pay. This may include providing alternative methods of payment, or even establishing payment plans for problematic outstanding invoices.

Every small business should have a comprehensive online accounting system that can track outstanding invoices so that business owners can follow up before the payment is overdue.

Business Foundations offers free workshops, and subsidised digital action plans and mentoring for small business owners through Digital Solutions. This program is for business owners looking to take advantage of technology to streamline and improve their business activities. What we do know is that the data that certain programs and software can provide can be invaluable to your business, and we can help you incorporate these into your business. To find out more about Digital Solutions, visit our website.