Veda SME solutionsSmall businesses are being pressured to pay invoices faster while larger businesses lag behind, increasing the risks for small business owners already plagued by cash flow issues.      

Research from Veda[1], a leading provider of credit information and analysis in Australia and New Zealand and a wholly owned subsidiary of Equifax, revealed that over the past 12 months, small businesses of between 10 and 50 employees were paying their invoices the fastest, followed by micro businesses (1 – 10 employees), which paid invoices with an average of 10 days beyond terms[2].

At the other end of the scale, businesses with more than 50 employees tended to pay their invoices at a rate 1.5 times slower than the average.  Damien Stevens, Veda Senior Product Manager, said the disparity between the average late payment days of small and large businesses had a host of negative knock-on effects not just for small business owners, but also for the wider economy.

“Cash flow is the single biggest pain point for SMEs, according to our research. SMEs that work with larger companies are often left particularly vulnerable to slow payments,” Mr Stevens said.  “If a customer owes a lot of money, this can put small businesses under significant strain when it comes time for them to pay their own invoices. “Chasing customers for payment is both stressful and time consuming. It can take time and money away from growing a small business and, if prolonged, contribute to business failure,” Mr Stevens added.

According to Veda’s data, large businesses of more than 100 employees in the information and media industry pay invoices slowest – 44 days beyond terms on average. These businesses were followed by those in agriculture, forestry and fishing (30 days); healthcare and social assistance (24 days); and professional services (20 days).

Reducing Risk Crucial for Small Business
An even greater risk to SMEs is becoming involved with a company that is paying invoices late due to internal financial difficulty. One of the first things a business will do when it runs into financial trouble is to attempt to renegotiate payment terms or simply stop paying its suppliers. While small businesses can’t always control cash flow, they can give themselves the best advantage by controlling the credit risk of whom they do business with.

In 2016, Veda launched its new SwiftCheck solution for SMEs. Veda’s SwiftCheck report gives SMEs information on the credit risk of businesses to assist them in determining the likelihood of a business not paying their invoices and becoming insolvent.

“A SwiftCheck report will give SMEs information on a business, such as its address, ASIC registration details, payment default history, recorded legal action and details on directors, as well as its business credit score. The report is designed to be understood by business owners who may not have the same experience as professional credit risk analysts,” Mr Stevens said.

“Without SwiftCheck, small businesses run the risk of being treated like a financier by their customers, to the detriment of their own business. Having to consistently deal with late paying businesses can lead to stagnated growth for SMEs, as well as distressing relationships with creditors when they can’t pay their own bills.

“SwiftCheck empowers small business owners to better negotiate payment terms and conditions with higher-risk customers upfront, helping protect their business from bad debt,” Mr Stevens added.

A SwiftCheck report costs $19.95 and takes only minutes to obtain, which is a small price to pay to better understand the risks of doing business.

[1] Veda data analysis of 570,000 businesses
Veda and Equifax Company 150[2] Days beyond terms is a business credit term; the calculation of the average time taken to pay invoices past the due date, weighted by the dollar amount outstanding.

Source: Veda Press Release