Kiwi small businesses are on track for a sunnier summer, if the current trend for invoice payment times continues. Looking at the latest data for September, Xero’s Small Business Insights found that goods and services invoices processed through Xero are being paid about 8.5 percent faster than the same time last year.
It’s a steady improvement and, if things continue this way, we hope to see speedier payments continue during the upcoming summer months. Contrast that with January this year when our data showed the average invoice was paid as much as 11.5 days late.
Late payments can upset a small business’s cash flow and impact productivity by making it difficult for them to fulfil orders, enforce delays in hiring staff and drive up administrative costs from chasing payments. This can affect and hinder the entire small business environment.
The good news is that the longer-term outlook for faster invoice payments is also positive.
New technology is enabling the development of tools that can help businesses receive more timely payments. For example, Xero subscribers can make use of an invoice reminder feature, which sends a notification when invoices have not been settled. Outstanding invoices with reminders get paid an average of four days sooner than those without, in the first 25 days after payment is due.
Other advancements include payment platforms like GoCardless, which recently entered the New Zealand market. Use of alternative solutions, such as Stripe and Paypal, have also helped to reduce payment times by up to 10 days, when they have been used in conjunction with Xero.
It’s also encouraging to see more large businesses tightening their invoice payment periods. Many major players are now settling their bills no later than 30 days from receipt or the 20th of the month following an invoice.
As is often the way in business, large or small, some industries will experience more later payments than others. The mining sector, which continues to suffer the longest payment period, - on average it takes 32.1 days for an invoice to be paid - has been joined by the financial and insurance services industry, which slipped back from 28 days in August to 32 in September. This pattern is not unusual for this sector and is something we have seen in the past, as payment times slow in the lead up to Christmas.
It’s sectors like these that should see the benefits from the introduction of new technology to help speed up payment times and positively impact businesses.
One such new technology is e-invoicing. The joint electronic invoicing (e-invoicing) arrangement between Australia and New Zealand is promising, with Small Business Minister Stuart Nash recently encouraging public feedback on the initiative. Research suggests the benefits resulting from e-invoicing could exceed $30 billion over 10 years from the increased productivity it enables.
This article was prepared by Xero using Xero Small Business Insights data, for the purpose of informing and developing policies to promote small business in New Zealand. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decisions.