It’s often said that cashflow is the lifeblood of small and medium businesses. But right now, that lifeblood is under growing pressure in the form of late and failed payments.
How bad is the problem?
Analysis from CreditorWatch for April 2026 found that business to business payment arrears had reached their highest levels in six years, with more payments sliding beyond the 60 days overdue mark. For a business owner, that can mean funding more than two months of operating costs, without payment, after work has been completed.
Alarmingly, additional CreditorWatch analysis for June found that one registered payment default can make a business 10 times more likely to fail than the national average within 12 months
To understand the ripple effect this trend could have on our broader supply chain, it’s important to lay out the contribution SMEs make to Australia’s economy.
SMEs – those businesses with less than 200 employees – make up around 99.8% of all businesses in Australia.
They employ roughly two-thirds of our nation’s workforce, and they contribute more than half of Australia’s total Gross Domestic Product.
In key industries that Australians rely on every day – like agriculture, fishing, construction and real estate services – SMEs account for billions of dollars of economic activity every year.
Financial stress does not stop with the debtor
For these businesses, late or failed payments can be far more serious than an administrative irritation. Businesses waiting for overdue payments still need to meet their day-to-day expenses – like wages, rent, tax, utilities, insurance and inventory.
Since July 1, they have also had to fund higher minimum wage rates and new payday super obligations, which require superannuation payments to land within seven days of each pay run.
They then still need to pay their own suppliers or subcontractors for goods or services delivered, or risk damaging key business relationships. If a supplier does not have sufficient cash reserves or access to working capital – which is likely the case for thousands of SMEs – it may delay those payments in turn.
This can set off a game of hot potato in which multiple businesses end up getting burned. It is how a single payment issue can spread through an entire supply chain.
To put a dollar figure on the impact, research released by Xero in March reported that late payments cost surveyed businesses an average of $15,257 over the previous financial year alone. A hit of that size can put even profitable businesses under pressure when payment cycles slow.
Other flow-on impacts of late business payments for SMEs can include:
- Deferred investment, product development or expansion – which can stifle a business’s growth plans and opportunities
- Deferred hiring decisions – which slows productivity, affects employment rates and puts time pressure on business owners
- Increased reliance on overdrafts or credit cards – which can add costs and weaken balance sheets
- Heightened stress – with real consequences for business owners’ mental health and personal wellbeing.
Payment behaviour as also an insolvency warning
Late payment does not necessarily mean a customer will fail. But it is often an important early warning sign.
While overall insolvencies actually declined modestly in FY2026, it followed a 33% increase in the previous financial year. And while late payments hover at six-year highs, and rising ATO tax debts add more pressure to the pile, the threat of growing insolvencies remains elevated.
Like the late payments scenario above, insolvency risk is not limited to the failing company.
Suppliers may be left chasing unpaid invoices at precisely the time their own costs are rising and financing needs are greatest, setting off similar supply chain issues.
Don’t wait for a cashflow crunch
SMEs can’t control every customer’s payment behaviour, and start-ups and smaller businesses may not have the necessary scale or clout to enforce stringent payment protections.
But there are certain things every business can do to limit exposure to late or failed payments:
- Conduct credit checks before extending payment terms to new customers
- Use clear contracts specifying payment dates, late fees and dispute procedures
- Request deposits or progress payments for large, lengthy or customised projects
- Invoice promptly and accurately
- Offer early-payment incentives where the commercial benefit outweighs the discount
- Try to avoid excessive reliance on a single customer or sector by diversifying their customer base
- Establish a working-capital facility as a core part of a cashflow resilience strategy.
Just as the best time to prepare for a crisis is on a calm day, the best time to build a working capital buffer is before it becomes urgent.
A business can have strong sales and a healthy order book but still struggle to meet day-to-day expenses if too much working capital is tied up in unpaid invoices.
That is where flexible working capital finance can help prevent customer payment cycles from becoming a handbrake on otherwise good businesses.
The right finance solution can provide business owners with the breathing room and peace of mind they need – helping to maintain operations, protect supplier relationships and preserve funds for investment.
Depending on individual needs, tailored options like invoice finance, asset finance, a line of credit or a structured business loan can help businesses pay the bills and invest for growth while customer payment cycles run their course.
Again, the key is to act before a late payment becomes an emergency.
It’s important to note that working capital finance is not a substitute for disciplined credit management, and it won’t solve a structural viability problem alone.
But where an otherwise sound business is caught between paying today’s costs and receiving tomorrow’s revenue, the right working capital solution can make all the difference.
ScotPac has decades of experience helping Australian businesses bridge that gap. For business owners who want the peace of mind that comes from being prepared, our team is ready to help.
