Government support keeps business payment times at record lows, but set to boom as measures end

Small businesses could face a cash crunch early in 2021, potentially killing off ‘zombie’ companies that are only surviving on government support, financiers warn.

The end of JobKeeper could see payment times on invoices blow out, triggering a cash crunch for small businesses that kills off “zombie” companies that are unviable without support, providers of early invoice financing warn.

A survey of invoice payment times by Earlypay shows payment times have declined from their long term average of 43 days to a low of 36 days during much of 2020 as government support has buoyed small business bottom lines.

Data from accounting firm Xero found payment times had decreased even further over the year, falling to a low of 23.7 days in October.

As of January 4 JobKeeper payments have been stepped down from $1200 per employee per fortnight to $1000.

This is already down from the $1500 payments introduced when the scheme first came into effect.

The payment is set to end in its entirety by March 28 2021.

Earlypay CEO Daniel Riley warns the end to the government support may prove a big hit to cashflows for small businesses.

“Cash flow is the lifeblood of every Australian small business. Having survived through COVID, many businesses will now be entering 2021 under considerable cash flow pressure due to the loss of the stimulus that they have come to rely on,” he said.

“As cash flow pressure increases in 2021, many of these businesses will be working hard just to keep their heads above the water.”

Earlypay collects its data from all outstanding and unpaid invoices issued by its clients to other businesses.

Mr Riley said the impact of slower payment times in the coming year would flow through to broader supply chains, as businesses aim to preserve cash assets.

“The impact of slower payments will move through the supply chain with SME suppliers waiting longer to receive payments, adding further cash flow pressure and constraining their ability to cover operational costs,” he said.

Mr Riley also said he expects businesses will be faced with the requirement to catch-up on delayed payments to the ATO as well as current obligations.

The government allowed businesses to delay payments to the ATO without incurring interest early on in the pandemic.

“Looking to 2021, with JobKeeper winding up and ATO payments resuming, the requirement to manage cash flow will be more vital than ever for SMEs,” Mr Riley said.

Many business observers are warning of a rippling wave of insolvencies in 2021 as government support is wound back.

The full extent of the government’s relaxations to statutory demands are expected to come due in the coming weeks and months, with the outcome potentially pushing some businesses into insolvency.

Early on in the pandemic the government extended the time a debtor had to respond to a bankruptcy notice from 21 days to six months.

The threshold at which a demand could be made was also increased from $2000 to $20,000.

The consequence of these changes has some industry figures warning of zombie businesses, with liabilities in excess of their assets which have only been able to continue trading due to government support.