Cash flow crunch as small businesses in the red with $26b in unpaid invoices

Cash flow crunch as small businesses in the red with $26b in unpaid invoices

Cara Waters

Small business editor

Daniel Platt, co-owner of Localing, a company that takes guided tours around Melbourne, has struggled with invoicing.Daniel Platt, co-owner of Localing, a company that takes guided tours around Melbourne, has struggled with invoicing. Photo: Josh Robenstone

Australian small businesses are owed $26 billion at any one time because of unpaid invoices but there are ways to avoid the cash flow crisis.

Research published on Monday by Intuit shows that of the 508 small businesses surveyed, the average SME is left in the red to the tune of an average $13,200.

As a small business owner you have to be good at everything when you are only usually trained in one thing.

Daniel Platt


Almost a quarter of small businesses that don't insist on upfront payments have to wait more than a month to be paid.

Daniel Platt, co-owner of Localing.Daniel Platt, co-owner of Localing. Photo: Josh Robenstone

This can be hugely disruptive to cash flow as small business owners report they spend an average 12 days per year chasing unpaid invoices.

"Despite most small business owners being willing to pay for services on completion when dealing with other small businesses, very few are asking for the same courtesy from their own customers and it's costing them dearly," Intuit Australia managing director Nicolette Maury says.

'Cumbersome and slow' systems

One small business owner who has struggled with invoicing is Daniel Platt, co-owner of private tour company Localing.

Platt says the business has "really exploded" in the past year as turnover moves from $100,000 last financial year to a forecast $400,000 this year.

Localing operated three separate invoice systems, none of which communicated with each other.

Platt says there was lots of manual back and forth.

"We have revenue coming in from lots of different ways and means," Platt says. "We were typing out manual invoices. I'd do some, my business partner would do some and then our staff would be doing some, and keeping track of invoice numbers was very cumbersome and very slow."

Platt says he often waited one to two months for payment.

"Everything was getting paid but sometimes it took a long time," he says.

Adding to the complexity some Localing clients are one-off travellers to Australia and only require one invoice, while other clients include five star hotels that invoice almost daily.

"It was a lot of extra work and in a small business, extra work is a killer," he says. "I knew it didn't have to be that way."

Platt has switched to one cloud-based invoicing system, which saves a lot of time.

"I feel that automation is the way forward, there is so much else you have to be responsible for," he says. "As a small business owner, you have to be good at everything when you are only usually trained in one thing. I'm a good tour guide."

Platt says getting on top of invoicing is also helping to attract new business from around the world.

"You need to look professional when people are contacting you from overseas and they don't know you from a bar of soap," he says. "Our average transaction value is $800 to $1000 and people need to be confident to spend that money with you from the other side of the world."

Putting on the pressure to pay

Time is of the essence when invoicing, says Des Caulfield, director of taxation and business services at MGI Adelaide.

"It's important to bill as soon as you've done something," he says. "Businesses that provide services sometimes leave it until the end of the month to do all the invoices but the longer you leave it, the more likely it is that you get a question or dispute as people may not necessarily remember what is agreed to."

Caulfield recommends using a cloud-based system to invoice instantly while on the job.

"The thing that brings companies down is a lack of control over accounts receivable and debtors," he says. "People will always try and take extra time if they can. Whoever has put the most pressure on, they will pay first."

Caulfield also recommends looking at the payment practices of debtors.

"It's not necessarily debtors who are slow that are going to give you a problem," he says. "If they are always slow, it's not necessarily an indication that they might be going bad. What you need to look for is if someone who has always started to pay you on time is starting to lag a bit."

Caulfield says small business owners struggle as they are under pressure to do everything themselves.

"No client is going to pressure you to issue an invoice so sometimes it can go to the back of the list," he says.

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