Independent research conducted by market analysts East & Partners on behalf of national SME funder Scottish Pacific found a huge disparity in how long it takes businesses in the $1 million to $20 million revenue bracket to get money in the door.
Having surveyed over 1,200 SME owners or senior finance staff, across a selection of industries and states, Scottish Pacific revealed that their range of payment times (debtor days) varied from seven days to an extremely challenging 134 days.
Scottish Pacific CEO Peter Langham said while the overall SME average is 56 days, the strain is more marked at the smaller end of the sector, with businesses of $1 million to $10 million revenue waiting on average 66 debtor days.
Their larger $10 million to $20 million revenue counterparts have a more manageable 40-day wait.
“Money that could be used to expand revenue and invest in growth is being tied up for too long, as SMEs struggle to be paid within a reasonable time frame,” Mr Langham said.
“This is a significant burden to bear and reinforces the importance of reducing payment times, in particular for SMEs struggling to source new funding or to refinance their existing borrowings.
“There is a great disparity, and we see as businesses become larger, they get paid more quickly.”
Third of revenue tied up in outstanding invoices
Delving further into the problem, Scottish Pacific found that SMEs have almost a third of their revenue (29 per cent) tied up in outstanding invoices, with 16 per cent of revenue locked into overdue invoices.
Given East & Partners calculates the average turnover of survey respondents at $9.8 million, they estimate each SME in the cohort is trying to deal with, on average, $2.82 million in outstanding accounts receivable.
“Each SME has to manage while having, on average, $1.55 million in invoices that are not just outstanding but overdue (defined as beyond the 90-day mark),” Mr Langham said.
“At the extreme, some small businesses are waiting up to four months to be paid and almost one in 10 SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report.”
Ombudsman Kate Carnell said in February that if big businesses continue to flout reasonable payment terms, she will have no choice but to recommend federal legislation requiring all businesses to be paid in 30 days.
This year, major businesses including Telstra and Rio Tinto have committed to shorter (20-day) payment times.