Small construction businesses throughout Australia are being more heavily burdened with late payments compared with those in any other sector and are being forced to wait many times longer than large construction firms to receive payment, new data shows.

Released by CreditorWatch, the latest data shows that more than one in ten (11.6 percent) small construction firms have payments owing to them which are 60 days or more in arrears.

This compares to just 2.3 percent of large construction businesses who have receivables in arrears of 60 days or more and represents a greater percentage of outstanding receivables which are 60 days or more overdue compared with equivalent firms in any other industry (see chart).

Moreover, the data shows that small business are waiting much longer to receive payments compared with their larger counterparts across all sectors of the economy (see chart).

The data adds to growing evidence that many large business across Australia are treating smaller suppliers as an interest-free bank.

According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), one in four big businesses are taking more than 120 days to pay small business customers whilst only three in ten are paying within the first 30 days.

Trade payments: large vs small business

Patrick Coghlan, Chief Executive Officer of CreditorWatch, said the burden of late payments on small business should not be underestimated.

“Small businesses are already tackling high inflation, high interest rates, supply chain issues and labour shortages, and the last thing they need right now are lengthy payment delays,” Coghlan said.

“Businesses need to ensure they are getting paid on time to ensure they can pay their own liabilities and have sufficient working capital to maintain their operations and grow. With fewer resources at their disposal to collect and chase payments, small business should consider automated credit risk management solutions that can help reduce incidences of delayed payments.”

Bruce Billson, Australian Small Business and Family Enterprise Ombudsman, said the problem of large business withholding cashflow from smaller suppliers is concerning.

“Nearly one-quarter of big businesses taking four months or more to pay their bills is just not acceptable and there is little sign of improvement by the worst performing businesses,” Billson said, referring to the aforementioned data.

“This needs to be taken more seriously. Finance is the oxygen of enterprise. Cash flow is vital to these small and family businesses. There is abundant scope for big businesses to lift their game and they should.”

Speaking of the construction sector, Contractors Debt Recovery General Manager Anthony Igra said challenges associated with late payments for small construction business are severe.

Igra says the problem may be even more severe than the data suggests.

“This is no surprise,” Igra said, referring to the CreditorWatch data.

“The construction industry relies on the cash trickling down the contractual chain. It is no surprise that the trickle tends to stop at the head contractor. This is not a new problem, and maybe the economic and post-COVID world has exacerbated it. But it not a new dynamic.

“We have certainly seen a huge increase in inquiries (at Contractors Debt Recovery). I think the cash starvation of COVID has motivated smaller contractors to chase their money earlier and harder. Many are now trying to recover payments from 2020!

“The report refers to debts of over 60 days. But getting paid within 60 days is still a luxury for most subcontractors. We routinely see unpaid debts going back 8-12 months. And I mean ‘routine’, not an exception.

“I suspect there is data here that is going uncaptured that tells a far more dire story.”

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