The Hidden Costs of Late Payments for Small Businesses

Late payments are more than just an inconvenience for businesses — they're a barrier to sustainable growth and daily operations. Clients delaying payments can put your entire business under financial stress, leading to various challenges affecting every aspect of your operations.

The reality of late payments on business operations 

Small-to-medium enterprises (SMEs) across Australia are facing pressure as higher interest rates, a tight labour market, and rising costs make financial management increasingly challenging.  

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has seen a 50% jump in calls from small businesses struggling to stay afloat, with many worried they'll go under because of unpaid invoices. 

While alarming, this statistic isn't surprising. The Business NSW December 2024 Business Conditions Index reveals that 39% of businesses are having to wait longer to receive payments from customers, further straining cash flow. This is especially concerning to businesses that are already used to waiting more than 30 days before they see any money coming in after finishing a job they've likely put money into, by way of materials or labour.  

What do late payments really mean for small businesses? 

Cash flow challenges 

Late payments disrupt cash flow, which means businesses may struggle to cover expenses like rent, utilities, and supplier costs. Without the cash flow to purchase essential supplies, a business will have a hard time continuing to operate.  

The impact of debt turn 

Late payments also negatively affect a business's debt turn — or Days Sales Outstanding (DSO). Debt turn measures the average time it takes for a business to collect cash from its invoices. Here's an example: 

If $100,000 in invoices is paid within 30 days, the average of $3.3k per day flows into the business. 

If the debt turn slows to 45 days, which happens when customers take longer to pay, the average daily inflow drops to $2.2k per day. 

Let's say this business has operating expenses of $100,000 per month. If it's taking them 45 days to see the money come in, they'll need to find a cash flow solution to keep up with their monthly expenses.  

Essentially, a longer debt turn reduces a business's ability to keep up with the day-to-day expenses of running a business. 

Difficulty paying employees 

Employees are the backbone of operations, so it's essential they're paid on time. Late payments can put payroll at risk and potentially impact morale, retention, and even your ability to attract new talent. 

Missed growth opportunities 

Cash flow uncertainty often forces businesses to delay or even miss out on growth initiatives such as upgrading equipment, hiring staff, or investing in new opportunities. This puts businesses in a defensive mode, focusing on survival instead of progress.  

Stress on business owners 

Beyond the operational impacts, late payments can create enormous stress for business owners. The uncertainty and constant juggling of finances can take a toll on mental health and decision-making, affecting the long-term health of the business and the personal lives of those involved in the business.  

How Invoice Finance Can Help 

Invoice finance offers a proactive solution to the late payment problem, providing access to funds tied up in unpaid invoices. Here are some key features:

Cash injection when it's needed. Instead of waiting for more than 30 days for clients to pay, businesses can access up to 85% of the invoice value as soon as they've been issued. 

Steady cash flow. With a consistent cash flow, businesses can cover operating expenses, pay staff, and seize new opportunities without the stress of payment delays. 

Flexible and efficient. Once your client pays the invoice, the remaining amount (minus any fees and interest) is released to you.  

Empower your business. By removing the uncertainty of late payments, invoice finance allows business owners to focus on what they do best — running and growing their business. 

Ready to take control of your cash flow? 

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you unlock funds to fuel growth or keep on top of the day-to-day operations of your business, contact us today on 1300 760 205 or complete our sign-up form.