Small businesses have had increasing pressure put on them to innovate by the federal government, but most can’t even contemplate innovation until their overdue invoices are paid.
The latest push in the government's 'Innovation Nation' plan has shone the spotlight on our mighty small business fraternity, with the National Innovation and Science Agenda to provide tax breaks to small businesses to encourage innovation.
According to the Minister for Industry, Innovation and Science, Greg Hunt, innovation isn’t just about tech start-ups, but also about established businesses doing things better.
However, without the working capital that’s tied up in a growing number of unpaid invoices, it’s going to be extremely difficult for SME owners to simply keep their own business afloat, let alone innovate.
Right now, small businesses are collectively owed $26 billion, according to the Late Payments Study by PayPal and Intuit late last year.
In fact, 72.5 per cent of all business invoices are paid late, with payment terms extending to a whopping 61 to 90 days outstanding, a rise of 22 per cent, according to the ACCC.
The consumer watchdog also says a crushing 18 million hours each year are wasted chasing debtors.
In addition, our own research shows that for every dollar sitting in the balance sheet, it costs 13 cents in lost revenue due to long payment terms.
Late payments place a huge stress not just on a business owner's bank account, but also on their mental health, relationships and family members.
Fast-moving consumer goods (FMCG) giants Kellogg’s and Fonterra recently increased payment terms for local suppliers to a staggering 120 days. Likewise, suppliers to Unilever and Nestlé are at the mercy of 90-day terms.
This shows that for all intents and purposes, small business owners are effectively allowing themselves to be used as a bank by not insisting that payment terms are met within 30 days, or reasonable time frames.
Increasing numbers of small business owners are effectively bankrolling the multinationals by waiting up to three months to be paid, making it impossible to cover everyday costs associated with running their business.
Rather than sitting on their hands waiting to get paid, small business owners need to do their due diligence, state their payment terms up front and then enforce those terms.
This includes running credit checks, initiating automatically generated reminder and debt collection letters, and offer payment choices, allowing you to get on with running your small business.
It’s about no more excuses, and being proactive.
Freeing up this cash flow before considering federal government tax incentives and other initiatives is the quickest way to enable Australian small businesses to innovate.
And remember, innovation doesn’t have to be completely new, it can just be new for your business – such as taking control of your payment terms, once and for all.
Damian Arena is the managing director of debtor automation software platform IODM.