Long payment terms and late payments are the biggest risk to cash flow for small businesses. Nearly 40% of small businesses report significant cash flow pressures due to late payments. Approximately half of all invoices issued by small business to large businesses are paid late, totalling $115 billion delayed earnings per year. This leads to increased pressure on small business and a stall on money circulating in the economy.
Small businesses have very little bargaining power compared to large entities who have a number of potential suppliers in any marketplace. This impacts their ability to demand fair payment terms for goods supplied and services rendered. It is critically important that good payment terms and times are passed down the supply chain to support the cash flow and growth of small businesses and recirculate funds in the economy.
Due to extremely poor payment practices in Australia, this Office has undertaken comprehensive research on how to improve payment times to small businesses. Our 2017 inquiry and 2019 review of Payment Terms, Times and Practices recommended the introduction of an annual reporting framework, and clearer expectations and government policies on payment practices within Australia.