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More than 80% of businesses affected by late payments, according to CreditorWatch survey

Late Payment

More than 80% of businesses have experienced late payments in the past six months with four in 10 (37%) saying they often wait for 60 days or more, according to a new survey by CreditorWatch.

Payment defaults are described as a leading indicator of future business insolvency by the credit bureau, revealing a 24% likelihood of failure within the next year for a business with a single default registered. This probability significantly escalates to 62% when a business accumulates three or more defaults.

In addition to late payments, which are particularly crippling for those operating on tight margins such as SMEs, Australian businesses also reportedly find themselves struggling with power imbalances when negotiating contracts. 

Two-thirds of businesses (66%) said they occasionally or frequently feel they have less bargaining power when negotiating with larger businesses.

The pressure is especially on during the holiday season with an increase in late payments and payment defaults as many businesses shut down for the period with unpaid invoices, leading to a 20% drop in revenue on average coupled with ongoing economic challenges.

The survey found:

  • 82% of respondents said they had experienced late or overdue payments over the last six months
  • Businesses in the construction, manufacturing and information, and media and telecommunications industries had the highest proportion of late payments at more than 45 days late
  • 37% of businesses commonly experience payments more than 30 days late

In an attempt to reduce exposure to late payments, the most popular approaches adopted by businesses include automated reminders (62%), automatic alerts when credit risk changes (43%) and adjusting terms and conditions (37%).

When it comes to excuses given for late payments, the most common include “my customers haven’t paid me, so I can’t pay you” and “having COVID”. 

Some were far more outlandish and creative, stating: “I had to go to the grand final”, “I left my wallet in my mistress’s car” and “I got hit on the head and forgot to pay”.

Commenting on the survey findings and highlighting the impact of late payments on small businesses, CreditorWatch’s CEO, Patrick Coghlan, said: “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 added “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.”

The survey follows the announcement of a series of new reforms which aim to improve small business payment times, naming and shaming big businesses who fail to pay small businesses on time.

The Albanese Government responded to an independent review of the Payment Times Reporting Act 2020, which identified a clear case for government intervention against large businesses who fail to pay.

The government said it will invest $8.1 million to support a range of initiatives that will deliver better outcomes for small businesses, committing to highlighting the best and worst payment performers, overhauling the Payment Times Reporting Act, ensuring payment times are considered in the development of relevant Government reforms and policies, and reducing the regulatory burden for entities reporting under the Payment Times Reporting Scheme.

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