The latest Xero Small Business Insights (XBSI) data showed a sunny end to the year for SMEs, with goods and services invoices being paid around 11.8 percent faster in December 2018 than the same time the previous year, at an average of 6.7 days late.
The improvement at the end of 2018 will have provided light relief to many SME owners in the lead up to January – historically the worst month for late invoice payments. The most recent data shows that the summer months in a new calendar year can be the toughest for small businesses, due to a spike in the number of late invoice payments.
Unsurprisingly, we usually see businesses try and produce as much work as possible in the lead up to Christmas, with many also trying to make a concentrated effort to send out invoices on time to mitigate the slow down after the Christmas and New Year break.
Looking across the sectors, administrative and support services had the quickest payments in December 2018, with invoices paid an average of only 2.6 days late. The retail trade industry followed with four days late. This could be due to these sectors sending their invoices out earlier in the month or getting prepayment from clients and suppliers. It could also be that tighter invoice payment periods from large corporates are making a positive impact.
The retail trade sector often enjoys a busy summer period as the industry welcomes festive shoppers through its doors and a general increase thanks to spikes in tourism. When cashflow is high, invoice payments tend to follow suit, which would explain the faster payment times during December 2018.
In contrast, accommodation and food services, as well as education and training experienced the longest invoice payment times at the end of last year – nearly 12 days late in some instances. The pressure of getting invoices paid and to keep cashflow coming in during summer can be testing for many small businesses. Operating expenses generally remain about the same month-to-month and it can be difficult to balance this if revenue drops and the rainy-day funds aren’t enough.
While it can be difficult to mitigate a lack of cashflow, making sure invoices are sent early is something small business owners can do to help this. Using digital tools for invoicing can also help take the hassle out of getting bills sent as quickly as possible. For example, invoices can be easily created within Xero – online or on iOS & Android. Invoice reminders can also be set up to automatically chase invoices – a must have for busy small business owners. In fact, when using these, we’ve found that bills have been paid an average of four days sooner than without reminders.
It is promising to see an optimistic outlook for invoice payments at the start of what has been a bumper summer. This should improve further following new conversations around the introduction of universal e-invoicing, which should help boost the speed of invoice payments even more.
To ensure your small business is prepared for e-invoicing, register with MBIE for a New Zealand Business Number (NZBN) which will help with the transition.
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.