Are Late Payments Killing Small Business?

A new study in Australia showing how late payments are hindering small-business growth is just the latest in a series of studies underscoring how cash flow remains a major challenge for SMBs and a leading cause of business failure. 

The reality of the struggle small businesses face with getting paid on time combined with their importance to the global economy is creating momentum for innovations that help SMBs get paid faster. 

A study produced by cloud accounting software maker Xero analyzed more than 10 million invoices from about 150,000 Australian small businesses and found that late payments were a serious burden to SMBs and large businesses were a major culprit. 

Measuring trade between large and small businesses between from July 2017 to July 2018, the study found 53% of small businesses were paid late by larger enterprises. The study also tied late payments to revenue growth with those getting paid late growing one third slower than those getting paid on time. 

Xero has been focusing on innovations to help small businesses get paid faster. The company recently announced a partnership with point-of-sale player Stripe to create a new autopay featured where SMBs can set up and receive recurring payments from regular customers through Xero.

Back in February Intuit released a study showing the impact that cash flow challenges are having on small businesses worldwide. 

The company surveyed 3,000 businesses in the U.S., Canada, the U.K., Australia, and India. 

Among the findings:

  • 69% of SMBs say cash flow concerns keep them awake at night
  • 32% say they cannot always pay their vendors on time
  • 43% at least occasionally fail to pay their employees on time. 

Cash flow has always been a challenge for small businesses so it is probably hyperbolic to declare a small business cash flow crisis. But clearly, the health of small businesses worldwide would improve if they just got paid on time. Fintechs like Xero, Stripe, and others see this as an opportunity to innovate. This also is a signal that pressure for widespread adoption of real-time payments is likely to build.

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