Australian businesses are waiting longer to pay their invoices compared to six months ago, with the average outstanding repayment time growing by a week, according to data from industry financier Optipay.
Findings from the business finance company, released last week, suggest the average outstanding invoice is now repaid in 38 days, compared to 31 days in January.
The slowdown reflects the financial hardship faced by Australian businesses as pandemic-era support comes to an end, said OptiPay CEO Angus Sedgwick.
The resumption of Australian Taxation Office enforcement activities, the withdrawal of financial stimulus, and ongoing supply-side price shocks mean businesses that “previously weathered the past couple of years are suddenly realising their cashflow options are now limited,” Sedgwick said.
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Ultimately, the end of tax office leniency and tougher economic conditions will see insolvency rates increase, he added.
“We know the construction industry is doing it tough but we’re also seeing ripples across most industries.”
The CreditorWatch report, also released last week, found the proportion of businesses with payments in arrears by 60 days or more had increased in almost every industry sector.
Construction remains the sector with the most firms in arrears by 60 days or more, with 11.9% of building-related businesses behind on their payments in June.
Overall, CreditorWatch expects the small business default rate to hit 5.8% in the next 12 months, up from 4.5% in May last year, when regulators and debt collectors took a somewhat gentler approach to businesses behind on their payments.
The cashflow crunch is likely to deter some lenders and businesses from extending their credit services in the months ahead, said CreditorWatch chief economist Anneke Thompson.
“Businesses will be increasingly wary of their credit customers and their ability to pay going forward, even if no problems have arisen to this point,” Thompson said.
“Businesses in the growth phase, who require equity or debt for growth, may now see these lines of funding get increasingly more difficult to source.”
While major bank lenders continue to pursue business lending customers, there are early signs the extraordinary levels of startup funding and investment recorded in 2021 and early 2022 are winding back.
Further shocks may lay ahead for the small business sector, too: June quarter inflation data arrives on July 27, with those findings set to play into the Reserve Bank of Australia’s August cash rate decision.