Prushka Fast Debt Recovery polled 542 Australian SMEs as part of its latest Canary in the coal mine report, a bi-annual report it has conducted since 2006, which suggested that preparing for unpaid debts is one of the biggest challenges facing businesses in the 12 months ahead.
More than half (55 per cent) of the businesses surveyed are preparing for growth in the year ahead, and two-thirds are “confident” about their current financial position. But unpaid debts or cash flow issues were named by 53 per cent as their greatest concern for the year ahead.
According to the report, the building and construction industry stood out as the worst for on-time payment, with 21.1 per cent of businesses reporting late payments from this sector.
“Other” ranked a distant second on 10.5 per cent, followed by professional (8.8 per cent), retail (8.3 per cent) and a tie at 6.9 per cent between medical/dental and household services.
The least complained about industries for late payment were legal, mining and pharmacy (all on 0.5 per cent). Small businesses as a collective were nominated by just 0.7 per cent as being the primary culprit of late payments.
Interestingly, 1 per cent of those polled nominated the accounting profession as the slowest payers.
The full list can be found below.
“It’s concerning that more than one in five SMEs label the construction industry as the industry that takes the longest to pay invoices,” Prushka CEO Roger Mendelson said, commenting on the finding.
“Construction is such a vital part of the Australian economy; it’s an investment-led sector and bad debt or tough conditions in the sector can have a ripple effect throughout the economy.”
Overall, Mr Mendelson said there are positive signs that SMEs are taking the issue of cash flow more seriously, although a source of concern appears to be an increasing reliance on short-term loans to make ends meet.
“We can see SMEs beginning to tighten their business practices. Business sentiment in the sector generally remains positive, but we can see SMEs also recognise the importance of staying in control of their cash flow. They are acutely aware of the impact of a few bad debts on cash flow,” he said.
“There is some concern around the rise in SMEs using short-term loans to cover cash flow issues. At the moment, we’re still talking about a small base, but it’s a trend to keep a particularly close eye on because in an environment with tightening credit conditions, such loans are likely to be from non-bank lenders, which often come with higher interest rates. Such behaviour increases financial risks for SMEs and could lead to more pressure on cash-flow.”
ASIC recently revealed its list of the main causes of business insolvency, with inadequate cash flow or high cash use the main culprit for company failures, slightly ahead of poor strategic management.
According to ASIC’s figures, those in the “Other (business and personal services category)” are most likely to fall into insolvency, ahead of business in the construction and accommodation/food services sectors.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is currently surveying SMEs on payment times, in a bid to determine the extent of the problem and to identify the worst offenders.
A spokesperson for the ASBFEO said it does not currently have any statistics on the prevalence of late payments by industry.
Industries that SMEs say take the longest to pay invoices
- Building & construction – 21.1 per cent
- Other – 10.5 per cent
- Professional – 8.8 per cent
- Retail – 8.3 per cent
- Medical and dental – 6.9 per cent
- Household services – 6.9 per cent
- Hospitality – 6.4 per cent
- Business services – 5.7 per cent
- Automotive & repair – 5.5 per cent
- N/A – 5 per cent
- Education – 3.3 per cent
- Manufacturing – 2.6 per cent
- Agriculture – 2.4 per cent
- Government – 2.1 per cent
- Accounting – 1 per cent
- Patients (medical) – 0.7 per cent
- Real estate – 0.7 per cent
- Small business – 0.7 per cent
- Pharmacy – 0.5 per cent
- Legal – 0.5 per cent
- Mining – 0.5 per cent
Source: Prushka Fast Debt Recovery