Getting paid is critical for any business, but particularly so for small businesses who do not typically have big balance sheets they can lean on. In their case, cash flow really matters.
The spotlight is being put on the New Zealand, China relationship at present and on New Zealand being a small player that can be pushed around. For many small businesses dealing with big businesses in New Zealand, that’s been reality for a long time.
The good news is that Xero Small Business Insights data shows a steady improvement in payment times over the past two years. Average days late for an invoice has fallen from 8.3 to 6.7 days. Average days to pay has dropped from 25.5 to 24.2 days. Fewer firms are paying late. Pretty well all payment terms, such as seven, 20 and 30 days have seen an improvement.
Some of this reflects improvements in the economy which has been expanding solidly. The economy has trucked on despite the doomsayers and low levels of business confidence. The economy is a bigger and more complicated beast than many recognise; it’s like a super-tanker that takes time to turn and change direction.
Some will likely also reflect firms working harder to improve cash-flow and technology has been playing an important role here. For example, businesses using Xero are paid 33 percent faster if they utilise online invoices. And with the imminent arrival of e-invoicing, you would expect that to improve again. In addition, for those businesses using a payment platform such as Stripe or Paypal in conjunction with Xero - their invoices are paid 10 days faster than other invoices.
That’s the glass half full.
There is a flip side.
A huge proportion of invoices are still paid late. A whopping 43 percent of firms pay an invoice late. That’s close to half of all firms. The good news is that it’s been getting better. But if 43 percent of firms are still paying late, that’s more like being less bad as opposed to “good”. If an invoice is paid late, it's typically paid really late, as in 22.5 days late.
Getting those figures down is an easy win for businesses if they can achieve it.
Sometimes you need to throw some sunlight on things to lift energy, and remove lethargy.
There is sizeable sectoral disparity over paying.
The best sector paid an average of 4.8 days late in 2018. The poorest was an average of 11.5 days late. That week-long gap doesn’t sound like a lot but remember these are averages. Within that there will be wide disparity.
A hat-tip to the administration and support, arts recreation and services, and retail industries who are at the lower (better) end of payment times.
Brickbats to rental hiring and real estate, accommodation and food, and professional scientific and professional services who are all at the higher end.
Quickest to pay in the month of December was the administration and support sector (2.6 days late). Slowest to pay were accommodation and food (10.5 days late), education and training (11.8) and rental hiring and real estate (9.9 days late).
The economy is now late in the business cycle. Now is the time for businesses to begin paying even more attention to those little things that really matter such as getting paid and having systems in place to foster this. Improved payment terms across the economy is a win-win for all. The faster money circulates, the quicker the economic wheels turn.
This article, including the insights and analysis contained within it, was prepared by Economist, Cameron Bagrie with the support of Xero through Xero Small Business Insights data. All data used is anonymised and aggregated. 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.