Paying the price: The economic impact of paying Australian small businesses late
Every year, $115 billion worth of payments from large to small and medium businesses (SMBs) are paid late, on average by 23 days. The impact of these late payments on small business – and the broader economy – is high.
In unique analysis using Xero Small Business Insights, AlphaBeta has calculated for the first time the economic cost of paying Australian SMBs late. Based on our analysis of more than 10 million invoices issued by more than 150,000 SMBs, we found eradicating late payments would generate a $2.54 billion net economic benefit to Australia over ten years.
Each year, Australian SMBs extend an estimated $216 billion in trade credit to large businesses. More than half (53%) of these are repaid late, on average by 23 days. If these payments were made on time, it would be equivalent to $7 billion in working capital being transferred from large businesses to SMBs.
Small businesses could use this $7 billion either to reduce their net debt (thereby lowering their net financing costs) or invest in fixed capital to increase their output (if they are capital constrained). The combined value of the additional economic benefit SMBs get from those financing costs and increased investment is $4.38 billion over ten years.
Allowing for the costs to larger businesses, this still results in a net economic benefit $2.54 billion over ten years to Australia from reducing late payments, largely because SMBs pay more for financing than larger businesses.