Financial expert warns of looming invoice payment crisis by EOY

A leading financial expert is warning that small and medium-sized enterprises (SMEs) could face record-breaking delays in invoice payments by the end of the year.

New data from OptiPay, a funding solutions company, shows that the average time it takes for invoices to be paid has already increased to 38 days. However, this figure is expected to rise to the mid-40s by December, a level not seen in the past decade.

“This slowdown in payments is having a ripple effect throughout the entire supply chain, impacting businesses across various industries,” said Angus Sedgwick, CEO of OptiPay. “It’s a clear indication that businesses are under increasing financial pressure and are becoming more selective about when they pay their bills.”

OptiPay has observed a surge in inquiries from SMEs seeking invoice financing to address their working capital needs.”With the ATO cracking down on tax debts, many businesses that have managed to weather the past few years are now realizing that their cash flow options are limited,” Sedgwick explained.

The situation is further exacerbated by higher interest rates, which have prompted banks to tighten their lending.”Unfortunately, many SMEs are going to feel the pain as they struggle with cash flow due to late payments,” Sedgwick warned.

The Australian Securities and Investments Commission (ASIC) reported a significant increase in business failures in 2023-2024, with more than 11,000 Australian companies entering external administration. Construction and accommodation/food services were particularly hard hit by this trend.

“SMEs are already facing challenging times, but the situation is likely to worsen if they are unable to implement safeguards like invoice financing,” Sedgwick added.

To address the issue of late payments, the Senate recently approved reforms to the Payment Times Reporting Act 2020. These reforms aim to streamline processes, improve data quality, and encourage large businesses to pay their suppliers promptly.

Under the revised legislation, businesses will be required to report their payment times in accordance with Australian accounting standards. This will ensure that the data is consistent and comparable. The regulator will also have enhanced powers to identify and publicly name the best and worst payers, conduct research, and even compel slow-paying businesses to make public disclosures.

Senator Carol Brown emphasized the government’s commitment to supporting small businesses. “These reforms will help improve cash flow, reduce administrative burdens, and lower financing costs for SMEs,” she said. “It’s unacceptable for large corporations to delay payments to their suppliers.”

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