Mitigating the significant and long-term risk of delayed payments

Outstanding invoice fulfilment is putting pressure on cash flow, decision making, and personal wellbeing.

Conducted by CreditorWatch, the Business Sentiment Survey looked at more than 1,000 Aussie business decision-makers and analysed the flow-on effect of late payments – and it goes far beyond minor inconveniences.

In today’s fraught and volatile economic environment, businesses need to closely manage costs and financial constraints. New data revealed 17 per cent of businesses rate delayed payments as one of the top risks to profitability, and 80 per cent have experienced overdue payments in the last year alone.

The issue is a structural one, with more than two-thirds of respondents claiming up to 30 per cent of issued invoices are paid late.

And this trend seemingly does not discriminate – sole traders experienced an average 14-day delay, while SMEs reported delays between 15 and 29 days. Scale also does not protect businesses: 94 per cent of businesses with over 200 staff are affected by this epidemic, proving it is not only widespread but a recognisable pattern of delay, with compounding effects.

Economic stability continues to be fragile, with 56 per cent of businesses reporting challenges in accessing finance, due to high interest rates, complex applications and collateral requirements. In turn, 60 per cent of respondents have turned to self-funding to stay afloat.

According to CreditorWatch CEO Patrick Coghlan, “many businesses are operating with very little buffer”.

He said: “Even when they’re technically profitable, late payments are stretching cash flow to the point where owners are delaying decisions, dipping into personal savings and taking on risk they shouldn’t have to carry.”

Individual wellbeing is also jeopardised when payments are unpredictable. Forty-three per cent of respondents reported personal stress as a major consequence of late payments, more than a quarter reported falling behind on loans, rent, or utility, and 24 per cent reported increased debt or delayed payment of wages as a direct consequence.

The business impacts are also severe – more than 20 per cent report weakened ability to deliver on contractual or service obligations.

Coghlan highlighted that “when payment delays become normalised, the pressure doesn’t disappear; it’s pushed down the supply chain. That has real consequences for confidence, growth and the willingness of businesses to invest, hire or take on new work.”

Chasing payments also presents its own issues, with nearly three-quarters of businesses expressing concern around customer relationship management. Twenty-eight per cent expressed concern that clients will reduce or cease doing business with them, 25 per cent don’t want to upset customers, and 19 per cent find the conversation a difficult one. This represents a very real and ongoing tension for many businesses.

In response, other methods were referenced as potential solutions. Eighty-eight per cent of businesses retain at least one strategy to reduce the likelihood or impact of delayed payments, such as avoiding customers with a history of overdue invoices, requiring partial payment upfront, shortening payment terms, or imposing penalties.

Due to the persistent and costly nature of delayed payments, taking these steps and making efforts to put all possible variables in one’s own hands may be the key to improved business confidence and easier management.

Coghlan said: “Improving payment practices would help unlock working capital already earned by businesses, reduce stress on owners and operators, and support healthier growth across the economy.”