While late payments can be an issue for SMEs at the best of times, they can be especially relevant over the holidays. Let’s look at how you can manage your cash flow and navigate tardy invoices that have the potential to set any good money manager off-track.

An Australian Small Business and Family Enterprise Ombudsman report shows that it takes Australian businesses an average of 26.4 days to settle invoices. According to a Xero study, the lack of timely payment by bigger companies costs small and medium businesses $7 billion annually.

Understandably, this is having an impact on SMEs and their cash flow. A 2020 report released by MYOB Business Monitor found that 38 per cent of SMEs are stressed about late payments, while 42 per cent are worried about cash flow.

This is only likely to become more of a problem over the holiday season when payroll departments and approving managers take breaks and invoices are often put on the backburner.

Expedite payments by charging interest

When companies know non-payment will hurt their bottom line, it might motivate them to settle the account. Ensure your invoices state the payment due date clearly (30 days is the standard period). If you have an overdue interest provision in your invoice, it should be included in the payment terms.

Finally, it is generally recommended that invoice late fees are capped at around 10 per cent.

Greater transparency means you can choose companies that pay faster

The Federal Government’s Payment Times Reporting Scheme mandates that large companies with annual revenues exceeding $100 million must report publicly how and when they make payments to small businesses. This means SMEs and startups now can avoid companies with a record for late payments.

Use our Working Capital Calculator

Your business may require extra cash flow to mitigate late payments over the holidays, but you don’t want to borrow too much. To determine the cash flow you’ll need to stay afloat, it is critical to know exactly how much working capital you require.

Working capital that is positive suggests a healthy business. If the company has a positive balance after subtracting all its liabilities, it is profitable. However, negative working capital may indicate sluggish sales or mounting debt from customers.

Try our Working Capital Calculator, it’s a great tool to help determine the health of your small business. Once you have a better picture of your overall position, feel free to connect and we can discuss the best plan to set you up for success in 2022.

Don’t forget to look out for more insights in the weeks ahead as we dive deeper into the pitfalls and solutions facing many Australian businesses ahead of a much needed holiday period for most!