What happens when you pay late? The cash flow domino effect explained

A late payment might seem harmless, but for the business waiting on that cash, it can be the difference between growth and going under. Delayed payments don’t just slow things down, they send shockwaves through supply chains, holding up jobs, straining relationships, and putting pressure on businesses that rely on timely cash flow to stay afloat.

In Australia, late payments pose a significant threat to business survival. Currently, more than half of all B2B invoices are overdue – and not just by a few days, but often by weeks. In the distribution sector, for instance, over 50 per cent of payments are delayed by more than 30 days, and nearly one in five extend beyond 60 days.

Let’s take a closer look at how a single missed payment can set off a domino effect far beyond your own balance sheet.

The domino effect of late payments

Each business in a supply chain relies on timely payments to meet its own financial commitments – whether it’s paying staff, purchasing inventory, or investing in growth. When that rhythm is interrupted, the impact can cascade, leading to operational delays, strained relationships, and even long-term financial instability.

In fact, B2B payment defaults have more than doubled in the past year, and insolvencies have surged by 57 per cent, reaching record highs . It’s a clear sign that late payments are more than just poor etiquette, they’re a leading indicator of financial pressures.

Why are payments getting later?

There are many reasons for late payments. Often businesses are offering longer payment terms to stay competitive. While others are simply struggling with their own cash flow and passing the pressure down the line.

For small business owners, chasing payments can be awkward. Many hesitate to follow up because they don’t want to upset clients or risk losing future business. In fact, 35 per cent of businesses say they avoid chasing payments for fear of damaging relationships.

But the cost of staying silent is high. Without steady cash flow, businesses struggle to invest in growth, pay staff on time, or even keep the lights on.

What can be done?


While there’s growing support for stronger regulation, such as Australia’s Payment Times Reporting Scheme – which is designed to hold large businesses accountable for how quickly they pay their supplier, compliance remains patchy, and many small businesses are still waiting too long to get paid. This highlights the need for clearer reporting and stronger enforcement.

In the meantime, there are a few things businesses can proactively do to protect their cash flow and reduce financial strain. Examples include:

• Asking for partial payment upfront to secure commitment and reduce exposure
• Imposing late payment penalties to discourage delays
• Shortening payment terms to improve cash flow cycles
• Using technology to speed up invoicing and collections– tools like Spenda help businesses send invoices more efficiently, offer different ways for customers to pay, and connect with accounting software to make tracking payments easier.

Late payments and tight cash flow are a global problem


Late payments are a growing problem, not just in Australia but around the world. For example, in the UK, late payments are costing small businesses an average of £22,000 a year, contributing to the closure of around 50,000 businesses annually. This problem also leads to a loss of 56 million hours in productivity, and with £23.4 billion still owed in unpaid invoices, the pressure on small businesses is only growing.

In the US, late payments are a major contributor to cash flow stress. More than 20 per cent of small businesses struggle to pay basic bills, and 45 per cent of business owners forgo their own pay. Nearly 1 in 5 businesses report being at risk of closure, largely driven by the knock-on effects of delayed payments.

To fix this, we need to change how we think about paying on time. It should be seen as a basic part of doing business and keeping the economy strong. If we want to build a more resilient business community, we need to treat timely payments as a priority, not an afterthought. Because when one domino falls, it doesn’t fall alone.

---

This article is for general information purposes only. Consult a qualified financial advisor regarding any changes to or decisions about your business’s finances.