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Long Payment Terms Squeeze Small Business

LUCA PlusJuly 30, 2019

One of the biggest headaches for small businesses is being paid late. Both the administrative costs and mental toll associated with chasing up receivables can take valuable time away from pursuing organizational goals and business management.

Following on from our article, The Cost of Late Payments, we explore what actions the Business Council of Australia (BCA) has taken to facilitate faster B2B transactions. While many solutions have been suggested, standardized e-invoicing appears to be the front-runner in fixing headaches for both small and enterprise-sized businesses.

Australian supplier payment code

With reports from ASIC stating that 49% of insolvencies in Australia were due to inadequate cash flow, the industry association Business Council of Australia has developed the Australian Supplier Payment Code (ASPC). Effective as of 1st July 2017, the code is a voluntary industry initiative that requires members to pay business suppliers within 30 days of receiving an invoice.

Some of the largest commercial banks, services firms and retailers in Australia have already subscribed to the code. These including juggernauts like ANZ, Rio Tinto, Boston Consulting Group, Bain & Company, KPMG, PwC, Bunnings Warehouse, Kmart and many more.

Although a step in the right direction, the code isn’t without limitations. Compliance with the code relies on good faith. As a result, there are no standards for internal benchmarking and no amenability in keeping with the code. As with any voluntary industry initiative, its viability requires uptake by large and well-established organizations, which for some may require administrative process changes.

It is then not a surprise to find that a report by the Australian Small Business and Family Enterprise Ombudsman found that little had changed since the establishment of the code. It was found that one in two small and medium businesses reported: “more than 40 percent of their invoices were paid late”. The lack of change since its establishment also highlights whether regulatory changes are required.

Payment times and LUCA

Without a means of enforcing the code, what solutions are available to small businesses to ensure that they are being paid on time? Without regulatory changes or government intervention, there are few things that can be done to enforce faster payment times. However, SME’s are still able to adopt the policy and tools are available to encourage change.

LUCA is a tool used to streamline payment processes by utilizing electronic invoicing. Also known as ‘e-invoicing’, the procedure eliminates additional steps in a transaction workflow by sending invoices directly between accounting solutions. As a full suite invoice management platform, LUCA analyses cashflows and shows your slowest to pay clients. LUCA does this by calculating your top 10 worst account receivables and warns of degrading payment times.

This information is especially useful for businesses to asses whether their clients abide by the ASPC or if they are in the process of transitioning their internal processes. While integrating additional software may be daunting to small business owners, sole traders, such as AV technician James, have welcomed the addition of LUCA to their bookkeeping practices.

“By streamlining my invoices so that I don’t have to manually input them, I know that I’m saving time and I’m paying my suppliers on time. Likewise, LUCA helps me understand which of my clients are consistently paying me late… which gives me an opportunity to either bring it up with them or find a way to manage my cashflow effectively.”

LUCA is free and can be setup directly on https://www.lucaplus.com/.