Late payments can be crippling businesses, particularly those operating on tight margins, such as SMEs. This pressure intensifies during the summer holiday season, a period that traditionally sees an increase in late payments and payment defaults as many businesses shut down for the period with unpaid invoices.

This guide aims to help you take proactive steps to manage late payment exposure and ensure a steady inflow of cash. We will cover:

• How your late payments experience compares to other businesses – the results of our 2023 Late Payments Survey
• The warning signs that you are about to be paid late
• Proactive measures you can take to mitigate the impact of late payments.
  
  

CreditorWatch’s 2023 Late Payments Survey

We surveyed 198 Australian businesses across October and November 2023. We found that many businesses are finding their growth hindered by late payments. The results reveal more than 80% of surveyed businesses have experienced late payments in the past six months with four in 10 (37%) saying 60+ day waits are a common occurrence.

No creativity was been spared in reasons for late payments with businesses sharing some of their best excuses:

• “I got hit on the head and forgot to pay”
• “I had to go to the grand final”; and
• “I left my wallet in my mistress’s car”.

Business-to-business (B2B) payment defaults registered with CreditorWatch in the past 12 months had a median overdue period of 170 days. Payment defaults, a leading indicator of future business insolvency, reveal a 24% likelihood of failure within the next year for a business with a single default registered. This probability significantly escalates to 62% when a business accumulates three or more defaults.

During the holiday period, Australian businesses also experience on average a 20% drop in revenue. Coupled with ongoing economic challenges and the traditional closure of many businesses during this time, the possibility of encountering late payments is significant.

In addition to late payments, Australian businesses also find themselves struggling with power imbalances when negotiating contracts. Two-thirds of businesses (66%) said they occasionally or frequently feel they have less bargaining power when negotiating with larger businesses.

Key survey insights:

• 82% of respondents said they had experienced late or overdue payments over the last six months.
• Businesses in the Construction, Manufacturing and Information, and Media and Telecommunications industries had the highest proportion of late payments at more than 45 days late.
• Administrative and Support Services had the highest proportion of its late payments in the ‘less than 10 days range’.
• 37% of businesses commonly experience payments more than 30 days late.
• The most common arrears period among customers who pay late was 10-30 days. Other arrears periods included:
  • Less than 10 days late – 23%
  • 10-30 days late – 40%
  • 30-45 days late – 17%
  • More than 45 days late – 20%
• The most popular methods used to reduce exposure to late payments are:
  • Automated reminders – 62%
  • Automatic alerts when credit risk changes – 43%
  • Adjusting terms and conditions – 37%
• Two thirds of businesses (66%) say they have less bargaining power with larger businesses.
• Almost half of businesses said they occasionally felt that they had less bargaining power when negotiating with big businesses (44%); 22% said frequently; 28% said rarely, and 7% said never.
• Excuses given for late payments:
  • The most common excuses received included “my customers haven’t paid me, so I can’t pay you” and “having COVID”.
  • Some were more creative, stating: “I had to go to the grand final”; “I left my wallet in my mistress’s car”, and “I got hit on the head and forgot to pay”.
    
    

CreditorWatch’s CEO, Patrick Coghlan, says small businesses are disproportionately feeling the brunt of late payments.

“Late payment rates for small business are, on average, three times greater compared to large businesses, which is a huge problem considering they are operating on much tighter margins,” he says. “With the incidence of late payments and payment defaults increasing over the Christmas, New Year period, businesses should be taking proactive measures to follow up on outstanding invoices before the break.”

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