CreditorWatch says a surge in late payments is hurting businesses

An increasing number of businesses are being hamstrung by a surge in late payments, which is ramping up the pressure on them as they cope with the impact of cost-of-living rises.

The construction sector had the most businesses reporting overdue notices.

An increasing number of businesses are being hamstrung by a surge in late payments, which is ramping up the pressure on them as they cope with the impact of cost-of-living rises, according to CreditorWatch.

The credit reporting bureau found the growing trend of delayed payments was affecting businesses of all sizes, with 96 per cent of large businesses and 74 per cent of small businesses experiencing late or overdue payments.

However, small businesses reported the most payments overdue by 60-plus days at 11 per cent compared with 6 per cent for large businesses.

Worst affected was the construction sector, which had 92 per cent of businesses reporting overdue notices, followed by distribution and business ser­vices on 87 per cent.

CreditorWatch chief executive Patrick Coghlan said a surge in late payments was creating significant strain across sectors, with many businesses struggling to maintain consistent cashflow as overdue invoices piled up.

“Late payments are more than an inconvenience, they’ve become a critical issue for businesses, affecting cashflow and operational stability, and even their long-term survival,” Mr 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.”

CreditorWatch chief executive Patrick Coghlan.

The rising number of companies struggling to pay invoices from suppliers underpinned CreditorWatch’s August Business Risk Index, which showed the failure rate for Australian businesses currently at an average of 4.95 per cent, having increased by 17.3 per cent since January. The credit reporting bureau has forecast that the rate will increase to 5.2 per cent across the next 12 months, driven by low levels of consumer spending, high inflation and interest rate increases.

CreditorWatch said business payment defaults also had surged by 68.1 per cent across the past year, reaching record levels. It also has identified a strong correlation between business-to-business payment defaults and business failures. 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.

While the construction, distribution and business services sectors recorded the most overdue notices in the past 12 months, they were followed by health and education (86 per cent) and financial services and insurance at 83 per cent.

Retail and hospitality reported the lowest incidence of late payments at 64 per cent.

Eight per cent of businesses in distribution – which is a sector connecting manufacturing companies and suppliers with businesses and consumers – had more than half their invoices overdue, compared with 6 per cent in construction.

The distribution sector was 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.

Other sectors experiencing a high volume of payments overdue by more than 30 days included business services (36 per cent) – which includes business such as accounting and consulting, facility management, market research, and staffing – health and education (38 per cent), and construction (39 per cent).

CreditorWatch’s Business Sentiment Survey assessed the strategies businesses were adopting to combat late payments with the most common approaches including 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 mid-sized businesses (30 per cent) noted having shorter payment terms as another key strategy, while larger businesses highlighted introducing technology to get paid more quickly (38 per cent).