Xero, the global small business platform, today released new data revealing the average Kiwi small business gets paid 6.3 days late, costing the small business economy $456 million annually.
The report, titled Crunch: Cash flow challenges facing small businesses, Part II, prepared by Accenture, also shows 45 percent of invoices issued by Kiwi small businesses in 2021 were paid late, with 8 percent paid more than a month after they were due.
New Zealand small businesses that received the majority (60-80%) of their payments late experienced 19 percent more cash flow crunches when compared with small businesses that were usually paid on time
Bridget Snelling, Xero New Zealand Country Manager, said: “Many Kiwi small businesses are still feeling the flow-on effect of COVID-19 lockdowns and subsequent slowdown in activity.”
“As the small business economy continues to recover from the impacts of more than two years of COVID-19 restrictions, consumers and big business alike need to remain aware of this climate.”
While COVID-19 lockdowns caused expenses growth to slow in 2020, expenses spiked in 2021 – peaking at 36 percent in the June 2021 quarter, driven largely by increases to the cost of goods and rent obligations.
“Delays in making repayments can make the difference between a small business remaining open and operational, or making tough decisions about the future viability of the business,” said Snelling.
“The pressure of expenses is one of the biggest stressors for Kiwi small business owners, with cash flow already continuing to be impacted by inflation and a decline in discretionary spending as consumers tighten the purse strings.
“It’s essential the government and the business community tackle avoidable cash flow stressors like late payments and relieve expenses pressures where they can.”
Late payments, rising expenses and seasonal slow downs a global issue
These challenges are faced by small businesses globally. The report identifies late payments, rising expenses, and seasonal slowdowns as causes of cash flow ‘crunches’.
The report found these three red flags put ongoing pressure on small businesses in each of the three countries analysed (Australia, New Zealand and the United Kingdom). Reducing late payments to affect less than 20 percent of invoices could reduce negative cash flow months by up to 19 percent for some businesses.
To minimise and counteract cash flow red flags, the report makes several recommendations, which include adoption of new payment options for faster payment and working with their accountant or bookkeeper to stay on top of rising costs and smoothing out expenses.
Rachael Powell, Chief Customer Officer, Xero, said: “Late payments lead to an inevitable flow-on effect for small businesses, creating unnecessary accounting complications and threatening owners’ ability to meet their own obligations – like rent or wages – in time.”
“While increases in expense costs and seasonal fluctuations in demand are often beyond our control, small businesses and national economies alike can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint.
“If small businesses and their accounting partners and governments can actively look out for these red flags in their financial data, they’ll find it easier to work together on ways to anticipate cash flow crunches and avoid them with better planning and more timely action,” said Powell.
The report, including the insights and analysis contained within it, was prepared using Xero Small Business Insights data, publicly available data and Accenture estimates for the purpose of informing and developing policies to support small businesses.
It was released during Xerocon Sydney, one of the world’s premier events for cloud accounting leaders, where delegates from Xero’s New Zealand, Australia and Asia accounting and bookkeeping and Xero app partner community have gathered at Sydney’s ICC to hear the latest from industry leaders and updates from Xero.