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Holiday period looms as critical for companies already facing a slowdown, survey finds.
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Late payments threaten 4 in 5 businesses: CreditorWatch
11 December 2023
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10 minute read
Four out of five businesses have been subject to late payments over the past six months and more than a third say 60-day plus waits are now common, according to a CreditorWatch survey.
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Its data showed businesses in the construction, manufacturing and information, media and telecommunications sectors were hit hardest, with the highest proportion of late payments at more than 45 days.
CreditorWatch CEO Patrick Coghlan said when it come to slow payments, small businesses were on the frontline.
“Late payment rates for small business are, on average, three times greater compared to large businesses, which is a huge problem considering they are operating on much tighter margins,” he said.
“With the incidence of late payments and payment defaults increasing over the Christmas, New Year period, businesses should be taking proactive measures to follow up on outstanding invoices before the break.”
CreditorWatch said businesses typically experienced an average of 20 per cent drop in revenue over the holiday period and the combination of economic headwinds and more business closures over the period exacerbated the late payments problem.
The credit bureau said business-to-business payment defaults over the past 12 months had a median overdue period of 170 days.
“Payment defaults, a leading indicator of future business insolvency, reveal a 24 per cent likelihood of failure within the next year for a business with a single default registered,” it said. “This probability significantly escalates to 62 per cent when a business accumulates three or more defaults.”
The survey found:
- 82 per cent of respondents had experienced late or overdue payments over the last six months.
- 37 per cent of businesses commonly experienced payments more than 30 days late.
- The most common arrears period among customers who pay late was 10–30 days while 20 per cent were more than 45 days late.
Almost two-thirds of businesses used automated reminders as a prompt to pay while almost four in 10 would adjust terms and conditions.
Reasons for late payments had become creative, CreditorWatch said, and some businesses had shared the best excuses:
- “I got hit on the head and forgot to pay.”
- “I had to go to the grand final.”
- “I left my wallet in my mistress’s car.”
The most common excuses received included, “My customers haven’t paid me, so I can’t pay you” and “having Covid”.
In addition to late payments, businesses also found themselves struggling with power imbalances when negotiating contracts. Two-thirds said they occasionally or frequently felt they had less bargaining power when negotiating with larger businesses.
Earlier this week the government committed to implementing all the recommendations of the Payment Times Reporting Scheme review, which found the system needed a comprehensive overhaul because it produced “impenetrable” data and had failed to materially reduce payment times.
The government said it would name and shame big companies that left small businesses waiting too long for payment, and amend the relevant act to simplify and streamline reporting, consolidate reporting for corporate groups, add more regulatory powers and address inefficiencies with current reporting processes.
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