Average small business owed $11,588 in overdue debts, research reveals

Small businesses need to be more aggressive in chasing down bad debts, the sector has been warned, with research released today showing the average SME is currently owed $11,588 in overdue debts.

The release of the Commonwealth Bank research comes just two months after Dun & Bradstreet data revealed average payment terms have remained high for small business.

The Commonwealth Bank research has found nearly two thirds of all payments are overdue and that small businesses are losing 16.5 million work hours each year in chasing small payments.

The research, which surveyed 750 small businesses, also discovered 95% of respondents said it’s vital debtors pay them on time to ensure healthy cashflow, while 78% said late payments cause them to delay payments to suppliers.

The study also found small businesses are spending on average two hours per month chasing up late payments – equating to 16.5 million hours lost across the country.

In the past 12 months, the survey found cashflow issues have caused 47% of businesses to pay invoices late, and 22% to pay staff wages late. Almost a quarter of small business owners have also previously managed a business that needed to close down.

Sue Barrett of Barrett Consulting told SmartCompany this morning the average $11,588 figure is disturbing and says small businesses need to be more aggressive when chasing up late payments.

“We recently had a company enter into a business arrangement, and this was for $40,000 worth of business. The owner has been delaying payment, and it’s extremely difficult,” she says.

“We’ve taken to the point of sending signed letters of agreement in situations such as these.”

Barrett says larger businesses are notorious for paying smaller businesses late, and says SMEs need to be more aggressive.

“You just need to have good, solid legal contracts,” she says.

“If you behave in a way which is more victim-oriented and don’t stand up for what you want, you’ll get your money later than what you want or need.”

The Commonwealth Bank survey also found New South Wales and Australian Capital Territory payment terms have the largest percentage of overdue debts at 78%, while Queensland and Victorian businesses come in at second and third, with 66% and 65% respectively.