SME average payment times are double what Ombudsman is seeking

Independent research conducted by market analysts East & Partners on behalf of national SME funder Scottish Pacific found a huge disparity in how long it takes businesses in the $1-20 million revenue bracket to get money in the door.

More than 1,200 SME owners or senior finance staff, across a representative selection of industries and all states, were surveyed.

Their range of payment times (debtor days) varied from seven days to an extremely challenging 134 days.

Scottish Pacific CEO Peter Langham said while the overall SME average is 56 days the strain is more marked at the smaller end of the sector, with businesses of $1-10 million revenue waiting on average 66 debtor days.

Their larger $10-20 million revenue counterparts have a more manageable 40-day wait.

“Money that could be used to expand revenue and invest in growth is being tied up for too long, as SMEs struggle to be paid within a reasonable timeframe,” Mr Langham said.

“This is a significant burden to bear and reinforces the importance of reducing payment times, in particular for SMEs struggling to source new funding or to refinance their existing borrowings.

“There is a great disparity and we see as businesses become larger they get paid more quickly.”

Third of revenue tied up in outstanding invoices

On average, the Scottish Pacific research found that SMEs have almost a third of their revenue (29 per cent) tied up in outstanding invoices, with 16 per cent of revenue locked into overdue invoices (outstanding beyond 90 days).

This was consistent for SMEs in the $1-10 million and $10-20 million revenue ranges.

“Each SME has to manage while having, on average, $1.55 million in invoices that are not just outstanding but overdue (defined as beyond the 90-day mark),” Mr Langham said.

“At the extreme, some small businesses are waiting up to four months to be paid and almost one in 10 SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report.”

Earlier this year, the Ombudsman Kate Carnell said it is imperative small businesses are paid on time, and that all businesses of any size should be paid within 30 days. This year, major businesses including Telstra and Rio Tinto have committed to shorter (20 day) payment times.