Late payments fell for three months in a row to August, helping keep small businesses in the black.

Overdue payments to Australian small businesses fell for a third straight month, setting a new low and helping keep cash flow positive for the first August in three years, according to Xero Small Business Insights.

Invoices with 30-day terms were settled in an average of 34 days in August, down from 34.5 in July. While that means payments still arrived four days late, it’s the shortest figure on record at Xero. The half-day drop is notable, given the July-to-August change is typically negligible. The figures in Xero Small Business Insights are aggregated, anonymised data selected from more than 500,000 subscribers in Australia.

Faster payments were a shot in the arm for cash flow. Some 53.7 percent of small businesses had more money coming in the door than leaving. That’s the best August in three years. It’s a win for Australian businesses, most of which typically see cash flow turn negative in August. It’s also a call to action.

“Payment times are coming down, and small businesses that don’t take action on their debtors list are going to be left behind,” says Michael Little,  business partner at Sequel CFO, a Melbourne-based service that offers virtual CFO services. “If business owners don’t focus on beating the benchmarks in Xero Small Business Insights, poor cash collection could constrain their growth more than that of their competitors.”  (See here for five tips from Sequel CFO on getting paid faster.)

The improved payment times may reflect a broader shift led by Australia’s biggest businesses. August was the second month that over 40 large companies, as well as several city councils, began honouring a pledge to pay small suppliers within 30 days. Coles and Woolworths supermarkets have committed to 14 days.

A deeper look at the August data reveals some states are quicker to pay than others. If you’re a small business in Victoria issuing a 30-day invoice, you can expect to be paid in 34.3 days on average – one full day quicker than in New South Wales. South Australian businesses seem to fare worst. Their invoices languish for an average 35.7 days. Meanwhile in Tasmania, they’re laughing: bills in the Apple Isle get paid in a relatively speedy 29.3 days, a day earlier than they’re due.

Some analysts have suggested Tasmania’s prompt payments may be due to the island’s outsize reliance on tourists – see this SBI article for details. Many pay on the spot for services such as food and lodging. And tourists outnumber locals: about half a million people live in on the island, and twice that number visit each year. Queensland, which sees even more tourists relative to residents, also boasts shorter payment times than Victoria and New South Wales at just 31.6 days.

Getting paid faster gives businesses the fuel to expand. That could mean taking on more workers. Headcount at small businesses grew by 1.1% month on month in August, Xero data shows. That’s compares with a loss of workers for businesses of all sizes, according to original employment estimates reported by the ABS. Official figures show Australian employment fell by 0.2% from mid-July to mid-August.

Ultimately, expanding a business is about managing cash flow, says Mark Lawry, a partner at Melbourne-area accounting and advisory firm Suntax.

“For me, it’s all about using Xero’s dashboard. For every client I have, I’ll set up a watch list on their dashboard with the amount of superannuation payable, GST payable, and pay as you go (PAYG) withholding payable. They can also see their bank account balance, invoices coming in, bills to be paid and when they’re due on one screen. It’s a snapshot of their whole business.”

It enables businesses to monitor what’s owing before they go and pay out any profit distributions, make drawings, or before they purchase any new plant or equipment, says Lawry.  “A lot of businesses will just see the money coming into their account and mistakenly assume they’re doing fine.”