Australian businesses are their own worst enemy when it comes to paying their bills on time. Our new research report Behind the Balance Sheet: Unlocking Hidden Value in Credit has found suppliers are owed billions of dollars in overdue payments, and financial tardiness is not only damaging to business relationships, it is potentially threatening the organisations themselves.
The impact of payments on our national ‘balance sheet’
Small and medium-sized businesses contribute a GDP of over $577 billion to the national economy and provide employment for more than 12 million Australians . Given the sector’s sheer size and role as a key pillar of the national economy, the impact of supplier payments and cash flow management has come under the spotlight in recent times among businesses, and those who supply them.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) initiated the Payment Times and Practices Inquiry to identify trends impacting Australian businesses when it comes to late payments and found that late payments – together with other adverse payment practices – are a critical issue impacting Australian businesses.
The $3 billion ‘relationship’ saving – but who’s missing out?
Alarmingly, the impact of not paying on time due to poor cash flow is far greater than ‘money off’ the next invoice. The ASBFEO found that almost all (90%) of small-to-medium sized business failures are caused by cash flow problems, with more than one-quarter (27%) of business owners forced to take loans to pay suppliers or wages – adding a liability to their balance sheet, and ultimately, their bottom line.
Our Behind the Balance Sheet report surveyed 355 CFOs to delve into the behaviour of mid-sized Australian businesses regarding their payment of domestic suppliers, quantify the impact supplier relationships have on the balance sheet, and ultimately, the success of Australian mid-sized business.
The research found that early payment is imperative for many businesses, not only from a relationship standpoint, but from a financial one. More than half of businesses surveyed (54%) have negotiated discounts through early payments, and the financial rewards have been substantial, at an average of 3% per invoice. However, 46% of businesses missed out on the opportunity to discount supplier invoices. Cash flow pressures were cited as the number one consideration when deciding how to pay suppliers.
Tap into prosperity with healthy payment practices
Despite 2017 presenting a positive outlook – with 65% of surveyed mid-sized Australian business CFOs forecasting growth – cash flow constraints continue to plague businesses from maximising their growth potential, and building stronger relationships with their suppliers to improve their bottom line.
In an increasingly competitive economy, CFOs should maximise opportunities offered by effective and efficient cash flow management, and healthier payment practices. The CFOs surveyed found that early payment of suppliers is a key indicator of successful businesses, with the majority (77%) of high-growth businesses securing early supplier payment discounts. A key mark of a successful, high growth business is their commitment to timely payment of domestic suppliers, business leaders need to think about the best way to improve their payment practices.
In a time where efficient cash flow management remains critical to business growth, business leaders must consider payment solutions, like credit for managing their cash flow, that allow them to access capital, without adding ‘loan liability’ to their balance sheet.
Credit key to stronger relationships
While cash flow is critical for any business to survive, we cannot underestimate the opportunity to extend cash flow for up to 51 days through the use of an American Express Corporate Card Program.
CFOs have cited in our research report that while the majority (81%) of them agree that credit is a good cash flow management tool, just 51% use credit to pay supplier invoices, and one-third still use cheques – a centuries-old payment method. This trend highlights the missed opportunity Australian businesses have to unlock the value of credit to negotiate preferential payment terms, and access discounts on payments.
Corporate card programs provide an indisputably clear and simple route to effective cash flow management, without adding ‘loan liability’ to your books. The benefits of using Charge Cards for cash flow management are three-fold:
- ‘Cash flow days’ help to extend the terms of business expenses and provide opportunities for early payment discounts to be negotiated
- Alignment of supplier payments with preferred statement cycles helps business receivables arrive before business expenses are due, and strengthens supplier relationships
- ‘Rewarding’ you and your business with a compelling rewards program with redemption options on things such as flights and accommodation, gift cards and entertainment to support all your business needs
Getting on top of cash flow and payments can be challenging for many business owners, however, strong relationships between Australian businesses and their suppliers have never been more vital.