Are late payments increasing your stress levels?

Are late payments increasing your stress levels?

Operating a business can be stressful at the best of times, but waiting for invoices to be paid can compound the situation and make control of cash flow difficult.

The Invoice Market released the SME The Cash Flow Crisis Report, which surveyed 800 Australian small-to-medium-sized enterprises (SME) with an annual gross revenue of less than $10 million. The results were startling. On average, each business was owed more than $38,000 in unpaid accounts.

This can severely impact a business’s ability to operate. Almost half the respondents said waiting to be paid prevents them from being able to pay their own suppliers, and a third said it had a negative impact on their ability to pay their employees.

This situation spills over into owners’ personal lives too, with 38% of those surveyed saying they have had to dip into personal savings to manage company cash flow. And almost half of respondents said it affects their ability to pay personal bills such as the mortgage, rent, food and other living expenses.

Unsurprisingly this situation starts to have a psychological impact, with almost half saying that waiting for invoices to paid increases their stress levels.

However some of these problems could be alleviated early on. The report found that four in five SMEs have payment terms of 30 days or less, 9% say 30 to 60 days, 1% 90 days, and 5% not nominating any desired payment period at all.

This is a recipe for disaster, as businesses in Australia are notoriously tardy with paying invoices within the stated period. 75% of SMEs are waiting up to a month after the due date, 21% have to chase account payments up to two months late, 2% up to three months and 1% even longer than that.

With these statistics, together with the fact that cash flow is an oft-cited reason for business failure, it is surprising that some businesses would not select a desired payment period. According to the Federal Government’s Australian Prompt Payment Protocol Discussion Paper, cash flow is crucial to the prosperity and health of SMEs.

“Late payments between businesses have a negative impact on competitiveness and increase the cost of doing business. Conversely, on time payments help businesses to unlock greater opportunities for investment to grow their business and to pursue their entrepreneurial aspirations,” the paper stated.

It was also stated that late payments have a ‘domino effect’ and it only takes one party within the supply chain to cause significant delays.

For tips to make sure your invoices are paid on time, read ‘Eight tips to make sure your invoices are paid on time’ blog.

With live access to your financial data, REEP creates cash flow forecasts updated in real time, so you’ll always have a clear picture of your cash flow.