Australian businesses are paying overdue bills in the fastest time on record, according to illion’s analysis for Q3 2018. The average time taken to settle a late payment now stands at the historic low of 10.4 days, down 17.7% on the prior corresponding quarter. Disparities remain, however, with a gap of 6.7 days between the large and small businesses.
Commenting on the statistics, illion Economic Adviser, Stephen Koukoulas said: “Late payments are an indicator of the financial health of the business sector, with low payments times associated with sound conditions. The most recent data, which shows late payments times falling to a record low, confirms strong cash flows in the business sector. A mix of low interest rates and well contained cost increases are encouraging firms to pay their bills in a speedy fashion.”
Over past few years the Small Business and Family Enterprise Ombudsman has driven a concerted effort to raise late payments as a key issue impacting small businesses across Australia. It appears to be paying off, as payment times have consistently decreased across all industries and sectors.
With the economy expanding at a decent pace and profitability in strong shape, many businesses are in a strong cash position. It is a favourable mix of news that has seen late payments decline. Assisting the move to lower late payments has been the remarkable structural change in the payments system, encouraged by technology where invoices and reminders can be automated, and direct debits made rather than posting cheques.
The ACT remains the worst late payment region. It managed to reduce times by the largest year-on-year percentage, however, with its Q3 average falling 23.1% to 11.8 days, compared to 15.4 days in September 2017. Tasmania, the fastest region at 8.0 days, has now seen its average time drop by 62.6% over the past five years.
Koukoulas added: “While the ACT continues to have the highest level of late payments, government policies aimed at speeding up bill payment has seen it record the largest fall in late payment times over the past year. This is welcome news.
Tasmania registering the lowest late payments reflects the remarkable turnaround in its economic fortunes over the past two years. The state has recorded strong economic growth, a sharp lift in business activity and significantly lower unemployment.”
The favourable economic conditions in Q3 saw prompt payments rise 4.8 percentage points. There was an improvement in all industries, with the forestry, wholesale and communication sectors registering the largest increases.
In line with our recent Business Failures analysis, retailers continue to struggle, recording the worst late payment time among all industries at 13.5 days. Despite lagging other sectors, retail businesses still saw late payments decrease by 14% year-on-year. Companies operating in the utilities sector weren’t far behind at 13.3 days. Late payment times for mining have fallen sharply over the past year as the sector has registered a strong lift in activity on the back of buoyant commodity prices.
The difference between the best and worst late payment times, according to business size, remains indicative of the power imbalance highlighted by the Small Business and Family Enterprise Ombudsman. The largest businesses remain well behind Australia’s smaller entities. At its most extreme this amounts to a difference of 6.7 days, with the average for companies with more than 500 employees currently at 14.6 days, while businesses with between 6 and 19 employees average 8 days.