Payment times for overdue business invoices are increasing
Businesses in Australia are waiting longer to pay their bills than six months ago, with the average time for outstanding repayments increasing by a week, according to data from industry financier Optipay.
Findings from the corporate finance firm, released last week, suggest the average unpaid bill is now paid off in 38 days, down from 31 days in January.
The slowdown reflects the financial difficulties facing Australian businesses as pandemic-era support comes to an end, OptiPay CEO Angus Sedgwick said.
The resumption of enforcement activities by the Australian Taxation Office, the withdrawal of financial stimulus and continued supply-side price shocks mean that companies that “previously held up over the past two years suddenly realize that their cash options are now limited,” Sedgwick said.
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Ultimately, the end of tax leniency and tougher economic conditions will cause insolvency rates to rise, he added.
“We know the construction industry is doing the rough stuff, but we’re also seeing repercussions across most industries.”
These findings were echoed in the June Business Risk Index from credit monitoring firm CreditorWatch.
The CreditorWatch report, also released last week, found that the proportion of companies with payment arrears of 60 days or more had increased across nearly all industry sectors.
Construction remains the sector with the most businesses in arrears of 60 days or more, with 11.9% of construction-related businesses in arrears in June.
Overall, CreditorWatch expects the default rate for small businesses to hit 5.8% over the next 12 months, up from 4.5% in May last year, when regulators and officials debt collectors have taken a slightly softer approach to overdue businesses.
The cash crunch is likely to deter some lenders and businesses from expanding credit services in the coming months, said CreditorWatch chief economist Anneke Thompson.
“Businesses will be increasingly wary of their credit customers and their ability to pay going forward, even though no issues have arisen so far,” Thompson said.
“Growth-stage businesses, which need equity or debt to grow, may now find those lines of funding becoming increasingly difficult to find.”
As major bank lenders continue to seek business loan clients, there are early signs that the extraordinary levels of seed funding and investment seen in 2021 and early 2022 are receding.
Other shocks could also affect the small business sector: inflation data for the June quarter arrives on July 27, and these results are expected to play a role in the Reserve Bank of Australia’s August decision on the cash rate.