Small businesses selling on credit are experiencing worsening payment delays, as fewer invoices reach due dates and more fall into overdue status. CreditorWatch’s September Business Risk Index reveals that only 48 percent of invoices were paid on time last month, a decline from 58 percent in the same period a year earlier. Overdue payments now represent 10 percent of all invoices, double the rate from 2022 and the highest level since April 2018.
For companies dependent on payment terms, the consequences appear immediately. When goods or services are delivered, a customer’s financial difficulties become the supplier’s cashflow crisis. Trade payment defaults—where unpaid debts are formally recorded—have increased by 26.1 percent over the past year, according to CreditorWatch CEO Patrick Coghlan. He states that slow payments serve as an early warning of broader financial issues, including insolvency and delinquency.
Some industries face greater challenges than others. In construction, late payments have surged from 6 percent to 13 percent of invoices over the past year, while food and beverage services now see 19 percent of payments overdue, nearly one in five. Transport, mining, manufacturing, and retail have all doubled their late-payment rates, climbing from 4 to 6 percent to 11 to 12 percent. Companies in these sectors now carry above-average financial risk.
Holiday season worsens cashflow crunch
The holiday season exacerbates the problem. Many customers halt operations from mid-December through mid-January, turning a December 1 invoice with 30-day terms into a January payment. Meanwhile, fixed expenses such as wages, rent, and superannuation continue without pause. With payday superannuation now mandatory since July, businesses have even less flexibility to delay their own payments.
A less recognized issue involves how GST accounting rules can strain cashflow. Businesses using the accrual method must pay GST on invoices in the period they are issued, regardless of whether the customer has settled the debt. Only those with annual turnover under $10 million can choose cash-basis accounting, deferring GST payment until invoices are paid. If a debt becomes uncollectable, businesses can reclaim GST as a decreasing adjustment once it is written off or overdue for 12 months. For tax purposes, bad debts are deductible only if written off before June 30, adding urgency to keeping debtors current.
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Businesses can implement tighter controls before the holiday shutdown with relatively simple adjustments. The most effective strategies do not require extensive changes, only disciplined practices. Running aged receivables reports weekly, rather than monthly, helps identify overdue payments early. Prioritizing the oldest and largest debts ensures swift action, while invoicing the same day work is completed prevents unnecessary delays in payment terms.
Proactive steps to recover overdue payments
Simplifying payments by including a pay-now link on every invoice or setting up direct debit for regular customers streamlines collections. Automated reminders through accounting software send alerts a few days before and after due dates, and by 30 days overdue, switching to phone calls, rather than relying solely on emails, often yields better results.
Before granting credit, verifying a customer’s financial stability is critical. Requiring a signed credit application, checking their ABN, and conducting credit checks or demanding a director’s guarantee for larger accounts adds necessary safeguards. For physical goods, including a retention of title clause in contracts and registering it on the Personal Property Securities Register ensures the ability to reclaim inventory if the customer defaults, rather than becoming an unsecured creditor.
Businesses should watch for warning signs, such as sudden payment delays, partial settlements, or changes in usual contact methods. CreditorWatch has observed a rise in ATO tax defaults, with unpaid taxes often signaling financial strain. If a customer consistently pays late, discontinuing supply is the safest course, extending credit to retain their business only increases risk.