Surging late payments is found to be impacting multiple sectors across Australia, according to newly released findings from credit reporting bureau, CreditorWatch, and its Business Sentiment Survey.
CreditorWatch’s August Business Risk Index found that as many as 92 per cent of businesses in Construction and 87 per cent in both Distribution and Business Services reported overdue invoices in the past 12 months and has affected businesses of all sizes, particularly 96 per cent of large businesses and 74 per cent of small businesses experiencing late or overdue payments.
The Distribution sector has been the most affected, with eight per cent of businesses in the sector reporting that more than half of their invoices were overdue, compared to six per cent in Construction. Distribution was also the worst category for payments 30-plus days overdue, with 51 per cent of payments overdue by 30-plus days and 18 per cent by 60-plus days.
Connection to business failures
The report also noted that the failure rate for Australian businesses currently sits at an average of 4.95 per cent, having increased by 17.3 per cent since January. Business payment defaults have also surged by 68.1 per cent over the past year, reaching record levels.
CreditorWatch also pointed out in its report a strong correlation between B2B payment defaults and business failures. It noted that a business with one payment default has a 28 per cent chance of closing in the next 12 months, increasing to 74 per cent for businesses with four or more defaults.
The amount of time a late payment is overdue was consistent across business sizes until the 60-plus days overdue category. But while 11 per cent of small businesses reported such delays, just one per cent of medium businesses and six per cent of large businesses submitted such reports, indicating how larger businesses have more capacity to chase late payments and possess greater bargaining power during contract negotiations.
How are small businesses coping with late payments?
CreditorWatch’s Business Sentiment Survey also assessed the strategies businesses are adopting to combat late payments. The most common approaches include ‘avoiding dealing with client/customers with a history of late or overdue payments’ (39 per cent), ‘requiring at least some payment in advance of delivery’ (35 per cent), and ‘imposing a penalty for late or overdue payments’ (28 per cent).
Smaller businesses (25 per cent) and medium-sized businesses (30 per cent) noted having shorter payment terms as another key strategy, while larger businesses said they were introducing technology to get paid more quickly (38 per cent).
Small businesses are hesitant to chase up payments
The biggest challenges businesses face when chasing late payments include ‘not wanting to upset clients/customers’ (35 per cent), ‘concerns that clients/customers will do less business or no longer want to do business’ (34 per cent), and ‘not wanting to be seen as rude’ (26 per cent).
CreditorWatch’s CEO, Patrick Coghlan, said that the surge in late payments is creating significant strain across sectors, with many businesses struggling to maintain consistent cash flow as overdue invoices pile up.
“Late payments are more than an inconvenience, they’ve become a critical issue for businesses, affecting cash flow and operational stability, and even their long-term survival,” Coghlan said. “This is placing enormous pressure on companies, particularly small and medium-sized enterprises, which often lack the financial buffers, negotiating power and collections capabilities that larger corporations have.”
