The latest Small Business Insights data is in, and across Australia, cash flow and late payments have hit their worst numbers in four months as tax bills begin to bite.
Small businesses that sent out a 30-day invoice were paid in an average 36.7 days in June, or nearly seven days late, based on anonymised and aggregated data from hundreds of thousands of Xero subscribers. That’s nearly a half day longer than in May. It’s also the longest wait since early this year, when businesses were recovering from the post-holiday slowdown.
Cash flow, which is the lifeblood of any business, also posted its worst figure in four months. Just 51.1 percent of businesses saw more money coming in the door than going out in June, slipping from 52 percent with positive cash flow a month earlier.
As in past years, June has proven to be the second-toughest month outside of the post-Christmas slowdown. What is it that makes mid-year so challenging for small businesses?
June is of course the end of the Australian financial year, but it’s also the month after many businesses pay their previous year’s tax bill, says partner Paul Lyons at WLF Accounting & Advisory in Hobart, Tasmania. For example, for the financial year ending June 2017, many businesses received an extension, giving them nearly 11 months to make their lodgement and payments and taking the due date to May 2018.
A yearly tax bill can take a toll on cash flow. On top of that, many businesses find their March quarter BAS payment is due about the same time. That’s the case for businesses that filed in March through a registered BAS agent, who can request a two-month extension.
“Put them together, and you can have a double whammy on cash flow in late May, leaving many businesses skint in June,” says Lyons, who focuses on business and personal advisory.
Here’s how long it took businesses in different locations across Australia to be paid on a 30-day invoice:
- ACT 28.9 days
- New South Wales 37.3 days
- Northern Territory 37.9 days
- Queensland 33.0 days
- South Australia 36.7 days
- Tasmania 34.5 days
- Victoria 39.6 days
- Western Australia 34.5 days
If past trends hold, we can expect late payments to improve in July’s national numbers by a day or more. And the percentage of businesses that are cash flow positive typically improves by a few points.
The explanation for this recovery may lie with with one of small businesses’ key customers: big business. Large companies, especially publicly traded ones, sometimes delay paying small suppliers in June, so they can end the financial year with lots of cash on the balance sheet, says James Solomons, co-founder of accounting firm Aptus Accounting & Advisory in suburban Sydney.
When July rolls around, big businesses may release pent-up funds, delivering a much needed boost to small suppliers’ cash flow and bringing payment times down.
June also marked a monthly slowdown in the pace of hiring at Australian small businesses, with employment rising just 0.5 percent. That compares with almost no change at businesses of all size, as recorded in original, non-seasonally adjusted data from the Australian Bureau of Statistics.
Broken out by work status, full-time roles at small businesses rose by 1.1 percent, while casual headcount dropped 0.4 percent.
In overseas trading, the total value of small business exports and imports tumbled 8 percent, led by a 17 percent drop in inbound shipments. Exports also fell, sliding 5.9 percent from the prior month.
We’ll have the figures for July early next month, and we’ll watch to see if cash flow and late payments do indeed improve as in past years. In the meantime, be sure to tune into our latest segment of XSBI TV. Chris Pickings from barbershop and men’s clothing store Pickings & Parry talks to Xero Managing Director Trent Innes about the struggles of keeping on top of cash flow while expanding a business.