Today’s Australian jobs report shows unemployment unexpectedly jumped to 5.9% last month, the highest in over a year. This unhappy news highlights the need to support one of the most important engines of job growth: small and medium-size businesses. The sector employs nearly half the nation’s workforce and has been rightly called the backbone of the economy.
The most immediate help Australians can offer is to support small businesses’ push for prompt, fair payments from large companies. Chasing unpaid invoices over several months can mean the difference between thriving and having to lay off staff. The nation lost over 6,000 jobs last month, a worrying sign given economists were expecting it to add more than 16,000.
Xero’s own data – anonymised and aggregated – shows that one in five invoices payable by small large ASX 200 companies to small businesses are overdue by more than 30 days.
Small businesses that suffer late or extended payment are three times more likely to close down those that are paid within 30 days.
Meanwhile, many big businesses use their size and leverage to require prompt payment from smaller peers, sometimes in as little as seven days. That crimps small companies’ cash flow – causing what we call the cash flow gap. And poor cash flow is the reason behind 90 percent of small business failures.
The issue of payment practices is now before the Australian Small Business and Family Enterprise Ombudsman. It should issue its conclusions within the next month. We hope the ombudsman suggests concrete measures to produce a more level playing field.
We have over 380,000 subscribers using our cloud-based accounting software in Australia. Most of them are small businesses, and many of them are business owners we know personally. We want every one of them to succeed.
We hope today’s jobs report will serve as a wake-up call to the importance of this sometimes overlooked segment of the economy. As goes small business, so goes Australia.