Moula backs the Federal Government’s decision to start paying e-invoices to small businesses within five days of invoice dates or pay interest on late payments. This new policy will come into effect from 1 January 2020. Where e-invoicing is not used, the government will continue to pay invoices within 20 days.
Moula CEO Aris Allegos said the Government’s move to encourage electronic invoicing and tighten payment terms will be a boon for businesses working with government and a welcome cash injection for the economy early in the new year.
“Managing cashflow is one of the greatest challenges faced by small to medium businesses; symbolic changes like these improve business confidence and stimulate investment planning.”
From experience working with small businesses to overcome their cash flow hurdles, Moula understands the importance of sound payment policies in building small business confidence. This sentiment is shared by The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell, who called the move a “game-changer”.
Research highlights problems caused by late payments
Quarterly research conducted by Moula showed that late payments to businesses offering invoice payment terms negatively affect cash flow and hinder business growth.
Among SMEs that sell to other businesses:
- 40% of their customers don’t pay on time when given invoice payment terms
- 63% experience cash flow issues as a result of late payments.
Although offering invoice payment terms results in late payments and cash flow challenges for businesses, they offer payment terms for a number of reasons:
- 21% say it enables them to sell more
- 30% offer it because their competitors do
- 34% believe it’s an important selling proposition
- 47% offer it because their customers expect it.
In 2018, the Commonwealth Government awarded $71 billion in contracts to businesses. SMEs accounted for around 18 per cent of the value of these contracts – nearly $13 billion.
Although the new policy is applicable only to businesses that do business with Federal Government departments, it will have a significant impact on cash flow and set an example for other organisations to speed up payment times. Big business payments to small businesses have been a significant problem. Research conducted by Xero in 2019 showed that large companies pay small suppliers 23 days late on average.