The costs behind late payments for small Aussie businesses

It’s estimated that 82% of retailers close down due to poor cash flow.

You might think that ‘poor cash flow’ relates solely to a lack of sales or leads. In reality, many businesses are selling a substantial amount of products, but the time it takes to receive payment for these items causes significant financial strain.

This issue highlights the hidden culprit in Australian business transactions, inefficient payment collection processes.

In a recent study on 150,000 small Australian businesses, a staggering 53% of all invoices sent were paid late by an average of 23 days. Another 20% was for an incorrect amount, while another 20% were paid to the wrong business entirely.

For larger businesses with millions of dollars in equity, these late payments don’t cause critical strain. They have the funds and diversified revenue to survive the wait, and the resources to work through payment errors.

For smaller businesses with lower cash flow, the long wait between receiving cash for goods sold, and payment inaccuracies can cripple their operation.

The direct financial blows to smaller businesses

Australian businesses exchange approximately 1.2 billion invoices annually, with smaller businesses issuing $216 billion worth of invoices each year.

With 53 per cent of those payments arriving late, around 127 million payments (240 million invoices x 0.53%) are delayed each year to small businesses.

These delays also mean $115 billion of stagnant money is not going to businesses on time, equating to around $52,000 owed to each small business in Australia every year.

That is a tremendous financial strain on Australia’s economy. These delayed payments can also lead to many smaller businesses funding their missing cash flow from home loans and credit cards.

If these invoices were paid on time with faster and easier payment collection methods it would transfer an additional $7 billion alone in working capital from large businesses to small-to-medium businesses.

Why do these errors still occur in a world where payments should be fast, accurate and straightforward?

Breaking down the costs of payments

One major flaw behind small-to-medium-sized Australian businesses falling behind in payment collection technology is that 85 per cent still use outdated manual data entry processes such as PDF’s or paperwork to handle their invoices.

eInvoicing technology was introduced to battle these methods by sending invoices directly to a customers’ accounting system, ready to be approved and paid without manual re-keying and a lower chance of errors.

Not only is this process faster, but it’s also much cheaper. Research shows it costs $30.87 to process one paper invoice, $27.97 per PDF invoice and only $9.18 per eInvoice for Australian and New Zealand businesses.

While standard eInvoicing technology helps avoid the financial headaches accompanied by outdated paper and PDF methods, many have hidden expenses that can sting businesses over time.

The most commonly used electronic bill payment systems in Australia charge around $0.70 per transaction, depending on your bank. Most businesses absorb this cost for the benefit of their customers and offer alternative payment methods to remove these fees.

While these costs are seemingly innocuous, depending on the number of transactions your business issues each month, these fees can add up to massive expenses over time.

Most banks and credit unions also only accommodate a set number of ‘free’ transactions each month. Once that limit threshold is exceeded, your business will cop additional charges.

This is where new payment collection technology such as Spenda Accounts Receivable opens the door to even better eInvoicing capabilities, with better flexibility on payment methods and the opportunity for small business owners’ to avoid hefty fees.

How Spenda levels the playing field for smaller businesses

Not only does Accounts Receivable allow customers faster and easier payment methods through efficient eInvoicing technology, but it can also process more than $25,000 in a single statement payment.

It means businesses using this modernised technology no longer cop fees from banks or credit unions for exceeding their daily transaction threshold.

There is also complete transparency and direct communication between businesses and customers when paying invoices through Accounts Payable. Links containing all outstanding payments can be sent directly to the customer, who can then view and batch-pay all invoices.

These payments integrate instantly within the financial system (MYOB, Quickbooks or Xero) in real-time for both parties and reconciliation is automated.

Spenda can also instantly integrate inventory management tools and point of sale software, providing seamless business processes and improved customer engagement.

New payment tech provides a smoother payment experience for a business’s customers, allowing them to track, group, and pay one or all of their outstanding invoices via more payment methods. Not only does this save time removing the burden of chasing down invoices, but it also provides more financial flexibility for the customer.

By solving the problem in payment errors and delays, small and medium businesses could benefit by $4.38 billion over 10 years.  

Please contact us to find out more or book a demo of Spenda’s suite of payment solutions.