Small firm, huge debt

AUSTRALIA'S small businesses are carrying $10.4bn in debt, of which 62 per cent is overdue, new research shows.

AUSTRALIA'S small businesses are carrying $10.4 billion in debt, of which 62 per cent is overdue, new research by the Commonwealth Bank shows.

The average business is owed $18,624, an amount that sets up a domino-effect as payments are withheld from successive businesses, the bank says.

The findings, based on a survey of 761 small businesses turning over less than $2 million, show that about 57 per cent agree late payments are "standard practice'' and 29 per cent withdhhold payments to preserve their own cash holdings.

CBA's general manager of local business banking, Adam Bennett, says cash flow remains a critical challenge for Australian small businesses.

"Business owners do a very good job (of managing finances) but there is a proportion of businesses where it is not a core skill and they are therefore more likely to find themselves in a difficult position,'' he says.

"We are encouraging them to think about looking for support early, whether that is from their business coach, their bank or somewhere else.

"Business owners should forecast their cash flow to identify weak spots and develop solutions,'' he says.

The survey also highlights the best and the worst states for small business debt.

Businesses in New South Wales are estimated to be owed $4.4 billion, with 78 per cent of that debt overdue. The best performer is Western Australia, with only 22 per cent of its $236 million debt overdue.

But the survey doesn't back a proposition that mining is the answer. Nearly 66 per cent of the $1.9 billion owed to businesses in the star-performing state of Queensland is overdue, compared to 54 per cent of South Australia's $448 million debt.

Mr Bennett says the survey did not reveal an explanation for the divide between states.

"But this doesn't just impact their business,'' he says. "When they are paying late it creates a domino effect so they are more likely to pay their own suppliers late.''

The research mirrors a recent report from Dun & Bradstreet, which shows 62 per cent of business accounts were settled late in the December quarter an average of 52.3 days late.

While this is an improvement on the post-global financial crisis high of 56 days, it underscores the lack of cash payments in the small business space.