Cashflow is the lifeline that keeps a small business’s heart beating. If you have not had cashflow problems you are one of the lucky ones, but for most small business owners cashflow is the key issue that determines a business’s survival. The anxiety of not knowing when the money is coming in can set the tone of your day, week, month or year. You are constantly checking your bank account and your mood is attached to your bank balance, or lack of it. You lie awake a night thinking of ways to find a few extra bucks or make those you have stretch further. You want to save money, but you need to live on credit while you wait for invoices to be paid – and of course this is costing you money because you have interest to pay. It is like walking on a tightrope, one little unexcepted surprise and everything will come crashing down.
If you’re a small business that contracts to big business, you may be experiencing cashflow stress because you have to trade on “big business” terms. In some cases, you not only need to wait for payment on their terms, but also declare that you have paid all your subcontractors and employees before big business will pay you. Factor in any supplies you need to pay for upfront and you are always chasing your tail.
That is why I was both pleased and infuriated when Rio Tinto made changes to their terms of payment last year.
I am pleased because the new terms are good. They are now re-defining their definition of a small business from someone with a turnover of $1M per year to $10M per year, while committing to pay their small business suppliers within 20 days rather than 30 days. This will undoubtedly help those suppliers.
I am infuriated because there is still a push from big business to hold back payments to its small business suppliers. I draw your attention to CIMIC who are one of the largest contractor companies running projects such as West Connex. This company uses something called Reverse Factoring, which means they hold back payment on their supplier invoices (CIMIC’s minimum terms are 65 days), instead offering a finance company to pay the supplier invoices at an earlier time for a discount. They are not the only company that reverse factors supplier invoices but CIMIC was a big focus of the media.
This is disgraceful. The executives who make these decisions are on massive salaries with no understanding of how small business owners operate. They think it is ok to withhold payment from suppliers for 65 days, or expect you to accept a discount to get what is rightfully yours. In the media they say that the contractors are happy with these terms, but honestly what other choice do they have? Big business hold all the power in these contract arrangements with no consideration about the impact they are having on small business owners and their families.
Hopefully pressure from companies like Rio Tinto and Telstra, as well as the government will shame these big business bullies into reducing their payment terms.
Here are some interesting statistics for you, sourced from Xero’s bridge the cashflow gap campaign; https://www.xero.com/au/campaigns/pr/cashflow-gap/. In the 2019/2020 year 62% of small businesses had encountered late or unpaid invoices. Close to 25% of small business owners say that they don’t have the operating cashflow to survive 1 month without their current invoices being paid. $115 billion was paid late by big business to Australian small businesses in 2019. My personal favourite (which I quote almost daily), if SME (small to medium business) invoices were paid on time it would add $7billion of stimulus to the SME sector.
I realise I talk about this a lot, but collectively we need to speak out about unfair business practices. We are not big business, but together the SME sector should be a voice that is heard. We are important to Australia and to the economy.
E-invoicing is on its way. E-invoicing is a secure network that will allow different accounting software programs to talk to each other. The invoice you generate from Xero, QBO or MYOB will auto populate into your customer’s software, no matter what system they are using. The government had committed to pay small business in 5 days once e-invoicing is operating.
It is not just big business who effect our cashflow. I am sure you all have customers who are slow to pay. There are things you can do to speed up the process of payment but sticking your head in the sand is not one of them. No one likes having that awkward conversation with a customer about payment. If cashflow is impacting your business speak with your advisor about what you can do to help get the money in the door quicker. You have done the work, you deserve to be paid for it on your terms.
Use your voice. The louder it is the more likely someone will hear it.