It’s time to bridge the cash flow gap

Late payments are making it tough for Aussie small businesses, with over 60% encountering late or unpaid invoices in the past year*. It’s time to change that. Here you’ll find tips and resources to help you get paid faster.

Explore the effects and discover solutions

The squeeze of the cash flow gap hinders thousands of small businesses each year but, together, we can create change that pays its way.

Here’s what you can do>


Statistics that shape the Aussie economy

We asked 500 Australian companies about late payments*. Their answers exposed a startling disconnect between industry practices and what’s needed to grow small business and the economy.


Nearly 2 in 3 are waiting to be paid

Over 62 percent of small businesses have encountered late or unpaid invoices in the past year. This can have a knock-on effect, with 38 percent saying late payments delayed their own payments to suppliers.

It also affects the larger economy, where small businesses employ nearly half of all Australian workers. Fifteen percent of businesses said late payments meant delaying wages or superannuation for staff.

accounts receivable statistics in Australia

How big business is putting the squeeze on small business

Trent Innes, MD, Xero Austraila

Small businesses are the workhorse of the economy. The 2.1 million tradies, café owners, entrepreneurs and growing empire-builders employ 4 million Australians and contribute a third to Australia’s private sector GDP.

So why is so little being done in Australia to help support them?

Recently, Telstra CEO Andy Penn promised to pay small business invoices within 30 days. He is doing what many of Australia's biggest businesses fail to do -- paying small businesses on time and helping keep them cash flow positive.

In fact, reports suggest they have done the opposite, with some of our largest pushing supplier payments to 45, 60, 90 and even 120 days in some cases. Many of these decisions have happened in industries where market power is concentrated, giving suppliers little choice but to accept the payment terms, and often suffering as a result.

Our own customer data shows that over the past six months, one in five invoices payable by ASX 200 companies to small businesses were overdue by more than 30 days. 65 percent of small businesses had invoices overdue by more than 30 days at any time in the past six months, causing them to experience a cash flow gap. Today there are more than 3.8 million invoices awaiting payment.

Failure by big businesses to pay on time significantly puts small businesses on the back foot. Rather than focusing their resources on growing their business, they are being forced to spend it chasing payments that are rightfully due. In the extreme case, lack of payments can lead to small businesses going under.

Lacking the comparable big-business resources to fight back, small businesses are largely at a disadvantage, waiting patiently until they get paid their rightful sum.

Not only that, but this puts a large lag on the Australian economy as a whole. Delayed or negative cash flow to a third of the private sector means less expansion, fewer open jobs and less distributed throughout the economy. A struggling small business can't grow -- and a small business that can't grow is a pull on the economy as a whole.

It begs the question: what are we doing to help them?

Very little, compared to other regions.

Next month, a report is expected from an inquiry by the Australian Small Business Ombudsman into late payments. There is talk around a voluntary payments code, a positive step that has the potential to significantly help small businesses. But without the right guidelines and the right businesses involved, it's unlikely to improve current trends for small business.

The United Kingdom and United States have both recognised this as a problem. The UK has a payments code that pushes big business to pay invoices within 30 days while the US' SupplierPay initiative sees large companies pledge to pay small businesses within 15 days.

Australia is falling woefully behind and we need to be doing more to support Australian small businesses. It's not about pitting small businesses against big businesses, it's about working together to find a solution, to even the playing field, and work together to continue driving the Australian economy.

No business should be hindered because of its size or lack of resources to fight back. We need to work together to find a solution. We need to do better.

If we don't, the tale of the Aussie battler, surviving against all odds, is unlikely to be anything more than a myth.

Trent Innes, Australian managing director at Xero

A tilted playing field

71 percent of businesses said their suppliers’ payment terms were often longer than their own, or they weren’t adhered to, leading to further major problems for business.

Small businesses are happy with payment terms of less than 30 days, but say anything longer than that is unworkable.

invoice payment term statistics in Australia

Hanging on the brink

Almost 25 percent of small businesses say they wouldn’t have the operating cash flow to survive a month if all the invoices currently owed to them were left unpaid. 

Some 62 percent of businesses would not survive more than three months if all invoices went unpaid. Almost 6 percent of businesses say they would last less than a week.

At least half say being paid on time would reduce stress, avoid unecessary debt and drive business growth.

operating cash flow statistics in Australia

Lend a hand

86 percent of Australia’s small businesses say the federal government needs to do more to discourage late payments – and 55 percent say the government needs to pay its own bills faster.

When it comes to the top reasons for big businesses holding up payments, 83 percent point to red tape and procedures while 78 percent say big companies throw their weight around and defer payments because they can.

cash flow management statistics Australia

Give ‘em a fair go

79 percent of small businesses support a government-backed policy to shorten the time it takes big businesses to pay.

Xero’s own data shows big businesses are often the biggest perpetrators of late payments.

There’s a widespread view (85 percent) among small businesses that big businesses should offer fairer invoice payment terms to ensure efficient economic throughput.

payment terms Australia

Businesses and accounting experts share their stories

Read the commentary of small businesses and accountants who have tackled the cash flow gap and discover techniques to make late payments a thing of the past.


We need action on late payments to small business (yes, I’m talking to you big business)

Nicole Pedersen-McKinnon, independent financial columnist

I’m a freelance journalist – granted, one who is also a finance expert – but that’s essentially the basis of my business. So when a magazine (that shall remain nameless) recently took four increasingly terse reminders and 10 weeks to pay a $4,000 invoice, it hurt. And I believe the only reason they paid me even that quickly was they wanted more work from me, and I refused until they made good on the last piece.

Somewhat unbelievably, I lost the gig because the experience made me ask for 50 percent payment up front the next time… and they were offended!

If you’re a small business owner, you’ll have many similar stories. Indeed, data interrogation by accounting software provider Xero has revealed there are currently more than 3.8 million invoices overdue to such businesses around the country.

And you’ll probably be unsurprised to hear it’s the big boys squeezing us little guys the hardest, despite the fact small businesses like ours make up 88 percent of all Australian businesses. Over the past six months, one in five invoices payable by ASX 200 companies to small businesses have been late by more than 30 days.

This is outrageous and, we now know, having significant impact. A new survey of 500 small business owners and managers by CoreData for Xero reveals being paid on time would reduce stress for small business owners (60 percent), avoid unnecessary debt (51 percent) and drive business growth (49 percent).

While small businesses typically have payment terms of 30 or fewer days, many big businesses enforce 60 or more days on them, with some making them wait up to 120 days after invoice. But a huge 62 percent of small businesses surveyed reported that, were all the invoices owing unpaid for three months, they don’t think they could survive.

It’s a serious ‘cash flow gap’ – and we all know cash flow is critical, with the ability to pay suppliers and staff, as well as profitability, hinging on it.

What are small businesses like ours doing about it? They’re carefully managing their cash flow and planning ahead (35 percent), ceasing trading with customers that repeatedly pay late (33 percent) and increasingly using technology and software that make the payment process as quick and easy as possible (33 percent).  

In fact, small business owners are adopting newer payment methods at a rate of knots. Of the 63 percent that offer one of the newer payment methods, the most common are PayPal (74 percent) and BPay (65 percent).

An overwhelming majority (95 percent) report some corresponding success in reducing late payments, too.  

But there needs to be official action to redress the power imbalance between big and small business and curb the sheer bloody-mindedness of some large customers in paying their invoices late – 57 percent of survey respondents believe this group pays slower than fellow small business customers.  

The bulk of small business owners agree with me. Eighty-six percent want the government to do more to support small businesses getting paid and to also set the example itself. We want government to pay their invoices faster (56 percent), regulate payment terms and conditions (52 percent) and favour small business suppliers where possible (49 percent).

And seven in 10 believe the government also needs to intervene to level the playing field between the David and Goliaths of our economy. Seventy-nine percent would support regulation to force big businesses to pay small businesses more swiftly.

There are economic arguments for doing so: it would ensure efficient throughput to the economy, say 85 percent of small business owners.

We’ll soon see what is actually to be done. There is a report on payment terms due any day from the Australian Small Business and Family Enterprise Ombudsman. Here’s hoping it helps.

Nicole Pedersen-McKinnon is a financial columnist, commentator and educator, who works for multiple media organisations and also contracts to the government and schools around Australia.


Nicole Pedersen-McKinnon discusses accounts receivable

How an innovative Aussie business kicked cash flow issues to the curb

In 2014 former colleagues Armin Kuhestani and Laurent Lambert took a calculated risk to leave their steady recruitment jobs and set up Ad-Roller Australia – becoming the only company in Australia to provide advertising on escalator handrails.

The concept meant bringing a new product to an already crowded market – advertising space in shopping centres – and competing with traditional advertising space in newspapers, online and on billboards.

“I once went to Germany and saw this concept of escalator handrail advertising,” explains Armin. “It struck me as a great idea – so I got in touch with the people who did it.”

With no advertising experience but armed with advice, Armin and Laurent launched Australia’s first handrail advertising company, Ad-Roller Australia.

Conversations, conversions and shortfalls

“We expected to be flying in year one,” Armin admits, “but we couldn’t really draw even a small salary until the second year. It’s only in the third year that we’re sustainable.

“We knew if we could just talk to the right people, we could make it work. So we went into shopping centres, and gradually learned who we should be speaking to.”

These slow and steady conversations turned out to be pivotal – opening Ad-Roller up to lucrative opportunities with some of Australia’s leading brands, who have since become loyal clients.

“It was an exciting evolution, but we quickly realised that cash flow issues would become a big problem for us during our first major project,” says Armin. “We had to pay upfront costs to the shopping centre before the handrails went up. We wouldn’t get paid by the client, via the ad agency, until over two months later.

“This translated into a shortfall of around $80,000, which is difficult for most small businesses to cover at short notice.”

Plugging the cash flow gap

To ensure their cash flow gap didn’t stifle early business growth, Armin and Laurent sought lines of credit and other financing solutions from banks.

“We learned that if you are a small business in cash flow strife, it can be difficult to get business credit card and overdraft from a bank,” says Armin. “So, next we looked at debtor financing companies, who pay the invoices straight away.

“But they usually take around a 10 to 20 percent cut and that wasn’t sustainable for our profit margins – as good as the financing model potentially is. So we went back to family and friends for short term loans.”

Managing the nuances of an operational model are one thing, but the unpredictable question of late payments compounded the problem. A client is late to pay at least once every quarter, Armin says.

“We did a range of things to try to overcome these cash flow gaps in the early days. Sometimes we’d take a top-down approach by talking to senior directors about changing payment terms, but more often, we’d end up using borrowing money from family or using our personal savings.”

The lessons learned in hindsight

Now in its third year of operation, the business is sustainable and profits continue to grow. And while cash flow and late payments can still create obstacles, the team has learned timely lessons along the way.

●      Chase money to come in earlier

●      Build savings earlier on as a buffer – you don’t want to say no to big projects that could prove to be the breakthrough for your business

●      Get an overdraft if possible. Don’t be afraid of maxing it out if you know you can cover it

●      Review your overheads and see what items can be temporarily reduced (e.g. salaries, office rental, etc.)

●      Rent out your personal property if you can (even a spare room)

●      Research your market thoroughly before launching to expedite your business

●      However long you think you can go without drawing a salary, double this period

●      Use Xero to forecast cash flow and predict your budget in advance

●      Set fixed costs in Xero to help with cash flow forecasting, to make this planning easier – such as marketing, coffee meetings, travel and so forth.

“I can see how much early savings help as a buffer to cover late payments and other cash flow challenges,” Armin says, in conclusion. “Whatever you think you will need to live off until your business is profitable and able to pay a salary, double it.

“If you don’t think your savings will support this length of time, consider holding off launching your business until more savings are in place.”

positive cash flow strategy by Ad-Roller Australia

Get paid faster without ruffling any feathers

Alastair Grigg, Head of Platform Ventures

A healthy cash flow can be enough to make or break any business, but how do you keep your invoices in line without compromising your hard-earned relationships?

First, understand your customer

Easily accessible information from credit reporting services gives you the power to interpret any payment problems in line with historic trends, so you can bend and shift your approach. If the data shows that your customer has recent bad form when settling payments, for example, you can put tighter terms of repayment in place. Equally, if you know your client is historically good at paying the bills, you don’t have to start pulling your hair out on the first day of delays.

Agree expectations in writing

Don’t wait until payday to have the conversation – send official documents at the start of each project. Official Terms and Conditions may seem OTT, but they’re a simple way to outline how you want to be paid, how many days your customer has to pay, and what action you will take in the event of a late payment.

Don't make it hard for someone to pay you

Sometimes the delay comes down to you – and the way you prepare your invoices. Make sure your paperwork is accurate and easy to understand, so you can limit any queries on the other end. Break down every cost and include all your bank details and contact numbers, even if you think your customer or supplier already has them.

Money talks

You’ve worked hard to establish a good working relationship with your client contact – and you may not want to undermine it with uncomfortable money talk. If you don’t have your own accounting team to keep things separate, contact theirs. This can protect your day-to-day relations while still bringing money through the door.


strategies for avoiding debt recovery in Australia

Cash flow hacks from an accountant

Jamie Davison, Carbon Group

A business’ cash flow is its lifeline. If your business is generating more than you’re chucking out — then great, but if it’s the other way around, you should get worried. From a cash perspective, a business works like a sponge — it absorbs cash and you have to squeeze really hard to get it back out. But if a business’ cash flow is mismanaged, no matter how hard you squeeze you’d hardly get anything in return. We’re here to offer some tips on how to manage your cash flow and wring the most out of it.

First, let’s understand the basics of cash flow with some terms you’ll encounter:

  • Accounts Receivable – the term used for what clients and customers owe your business.

  • Accounts Payable – the term used for the amount that you owe your suppliers.

  • Shortfalls – the amount where a liability or obligation that is due exceeds the business’ ability to pay.

Next, we’ll give some pointers on how to manage cash flow effectively:

Know what you’re working with

Accepting and understanding a business’ working capital is the first step to cash flow mastery. Ensure that your business has enough funds for your needs. How far behind are you in invoicing? How much cash is currently tied up with existing projects? How much do your current customers owe you? How long do you have until you need to pay your suppliers? These will all deplete your resources if not managed accordingly. It’s often said that every business should keep three months' worth of outgoings in the bank for emergencies. If this is not possible, just make sure that you have some sort of buffer so your budget doesn’t go down the drain.

Plan, plan, and plan

Now that you know what you’re dealing with, it’s time to plan ahead. Prepare for your down season to avoid any shortfalls. To give you a more feasible target for your sales, you need to work out your outgoings first. This way you can set a realistic sales target to keep your business afloat.

Review everything

Make sure everything is in order. Are there any invoices that were not sent to customers? How quickly are account receivables collected? Do you check your suppliers’ costs to make sure that you’re not being billed for items or equipment that you have not received? Be on top of your accounts receivables and accounts payables to smoothen your cash flow and help you plan how to move forward.

Cut costs

Stay on the lookout for possible ways to improve revenue or cut costs. If something isn't working for your business, take action. For example, create reviews for your suppliers and phase out any service lines or products that contribute minimally. Make sure that everything that you have for your business contributes to its growth – this means cutting off unproductive employees as well.

Cash flow management begins by understanding how businesses work, being able to access sufficient working capital, and working with a well-planned and productive approach. As long as you keep your cash flow positive, your business can weather any financial storm – and you’ll get better sleep at night too!


cash flow hacks from an accountant Australia

Accountant partnership propels business into profitability

Our data shows that small businesses are far more successful if they have an accountant. And many of them already do: as we announced at Xerocon, 92% of all Xero files are attached to an accountant, and that the number is continuing to climb.

With such a prevalence of small business-advisor relationships proving fruitful, it’s clearly a valuable interaction to understand. To help scratch the surface of its potential, we invited Interactive Accounting and online gift retailer LVLY, into the office as part of the Xero customer series to discuss the role the partnership has played in the startup’s quick business success.

Read the full article> cash flow strategy with accountant partnerships

How accountants and small business tackle the cash flow gap together

One in five invoices payable by ASX 200 companies to small businesses are overdue by more than 30 days, And according to a recent survey, the majority (62%) of small businesses do not think they could survive beyond the next three months if all debts owing were not recovered.

The cash flow gap is a real issue in Australia and, as we await the findings of a government inquiry into the issue, advisors are busy helping small businesses navigate the pitfalls. To learn more, we spoke to accountants Artur Durbanov and Domenic Stramandinoli of Nexis Accountants and Business Advisors and Craig White, the owner of Bridgestone Service Centre, to learn how they kicked Craig’s cash flow challenges aside.

Setting the scene: the extent of the issue

Craig’s clients often paid him up to 120 days late, meaning Craig occasionally had to max out his credit card and forgo his own salary to ensure his employees were paid on time. He engaged Nexis Accountants and Business Advisors to help him tackle the issue.

Step one: manage expectations

As a first step, Artur and Domenic suggested they work together to forecast the business cash flow, and create an ongoing action plan for improvement.

“We made it clear at the outset it wasn’t going to be a quick fix and that part of this goal relied on Craig getting out of the back office and back into sales, which is what he is good at,” says Artur. “Craig signed a commitment that said he was going to stick to this plan – and he did. All in all, the project took one and a half years.”

“I knew the cash flow challenge wasn’t going to be a quick fix,” agrees Craig. “I think it’s important for anyone in a similar situation to understand that it can take years to fix cash flow challenges but, obviously, it is so worth doing.”

Step two: dig deeper into the numbers

Next came a more detailed analysis. Because Craig worked so closely in the business, he hadn’t realised just how much it was impacted by cash flow.

“Early on we did a pretty detailed analysis of his debtors and creditors, and we worked out that 30 percent of Craig’s debtors at the time were over 90 days or more late,” says Artur.

“It turned out that those debtors were equivalent to around $40,000 in unpaid bills. If they had been paid on time, it would have covered the business debts in one hit.”

Step three: commit to a systemised approach

Quarterly meetings were then scheduled to stay on track with their cash flow forecast, based on this information.

“We set up a plan that looked at how we were going to improve cash flow,” says Artur. “Then we highlighted three areas in the business that were affected by this issue – payroll, compliance and sales.”

Step four: turn knowledge into action

Armed with those insights, Artur and Domenic used "tough love" to help Craig understand when to cut ties with slow-paying accounts, and when to proactively chase bills.

“It’s all well and good to have sales and the big customers on account,” says Artur. “But if they’re not paying, are they good customers? The sales that aren’t being paid aren’t worth much and you have to pay tax on them if they are on an accrual basis, which means you’re generating a liability for the business,” he says.

“In hindsight, I can see how much it benefits any business to chase overdue bills as soon as they’re overdue,” Craig adds. “Otherwise clients may learn that you let accounts slide, and they can ‘test’ you, to see how long they can hold a bill out for.”

Step five: track the impact of key decisions

Despite cutting some key accounts for good, Craig’s business revenue continued to rise and the improved cash flow benefited the business.

“That was a clear turning point for Craig,” reflects Artur. “As a business owner, you have to remember you’re not the bank for your customers, and you just can’t afford to be the bank for your customers – especially with no interest.”

Step six: divide and conquer

As the importance of cash flow became ever more evident, Craig decided to hire a bookkeeper.  

“It was a risky decision because it represented a substantial cost for the business,” he says. “But we worked out that the business was losing money because I was managing the books so closely, and not on the floor selling.

“Clients respond well to our bookkeeper, and pay more promptly. It’s definitely improved our day-to-day cash flow.”

Step seven: enjoy the effects

These days, Craig’s business is tipped to exceed projected revenue targets. And while he is never complacent about cash flow challenges – which can still creep if not watched closely – the business that he bought over two years ago is now thriving.

“Not only did Craig pay all creditors in the first seven months of operation, but he can now purchase some equipment outright without leases,” says Artur. “This is virtually unheard of in his industry.

“There is so much more cash in the business now. His revenue just keeps going up, year on year.”

Artur’s tips to aid your cash flow

  • Use automatic reminders: “Xero’s automatic reminders go a long way to chase client payments. Just set this up and all accounts are all automatically reminded. This way, you aren’t personally having to chase clients.”

  • Use the dashboard: “The more you pay your bills on time, the better your cash flow picture will be. Use the dashboard to quickly check who is owed and what bills are due.”

debt recovery in Australia

Turn to tech to speed up payments

From online invoicing to a digital directory of advisors, explore a collection of affordable solutions to help you get paid faster than ever.


Consider efficient payment options

The processes by which we exchange goods can enable a healthy cash flow, streamline processes, provide choice, and facilitate much-needed peace of mind – for you and your clients.

According to our research, small businesses are turning to technology to make it easier to chase payments and manage their cash flow. These days, 63 percent offer customers new payment options. The most popular offerings are:

* PayPal 
* Mobile payments 

Discover how a choice of payment services can impact your day-to-day business – and to get the lowdown on the key benefits.

Read our article of tips and tricks> mobile payment options in Australia

Xero mobile app

Send custom invoices when the job’s done. See when an invoice has been received and opened. Then let automated reminders follow up so you don’t have to.

Learn more>

Go with the Float

Float is a cash flow visualisation add-on for Xero. Forecast the cash in and out of your business for the coming days, weeks, months and years.

Learn more>

Reminder apps

Set reminders for the payment date when you send an invoice. On a smartphone or smartwatch, it’s a great way to check up on invoices when they’re due.

Visit Google Play

Search App Store


Visit the advisor directory

Use Xero's advisor directory to find a small business accountant, bookkeeper, integrator or financial advisor near you.

Find an advisor


About Xero

Xero is online accounting software that gives small businesses the tools they need to get paid faster, from invoice tracking to automated reminders and much more. 

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