Small business cash flow is reliant on timely payments from their clients and customers. Late payments is an ongoing issue for small businesses across New Zealand (and further afield). It has taken government intervention, and calling out on the issue from the likes of Xero to highlight the laziness of large corporates to pay in a timely fashion, and even everyday Kiwis dragging their heels when it comes to paying Suppliers on time. In 2019, Xero saw 79% of small Kiwi businesses having overdue invoices.
How big an issue are overdue invoices for Kiwi businesses?
A small business is defined by MBIE as one with fewer than 20 employees. In New Zealand, that’s more than half a million businesses, and 97% of all Kiwi firms. That’s a lot of livelihoods at stake and local employers contributing to our economy across the country. So if small businesses are, on average, being paid late, it’s no wonder that as a nation we currently have more than $7 billion in overdue invoices.
What is the impact of late payments for New Zealand businesses?
For small businesses, with limited cash reserves, getting paid enables them to buy more stock or materials, pay their staff and cover key operating expenses such as rent or utilities. The stress of late payments can start to take their toll, or other work or projects may be impacted by one key client not paying on time. At best, a small business owner might delay their own salary payment, essentially becoming a credit facility for the Client. At worst, it can bring a small business to its knees.
How can we tackle the issue of overdue invoices for New Zealand businesses?
There has been government attention on the issue, led by the Small Business Council in 2018 and 2019, and supported by similar situations in other countries where regulation has been introduced. It appears that government departments and large corporations are slowly being ‘shamed’ into paying on time, or within acceptable timeframes, but what about the service industry, that regularly invoices everyday Kiwis for building projects and renovations, and then hopes for timely payments? The Small Business Council’s discussion paper recommended a maximum payment term of 20 business days, but no formal legislation has yet been passed.
How can the NZ construction industry turn around late payments?
The service industry, whether you’re a white collar professional service provider, or a blue collar tradie, all suffer similar issues when it comes to late payments. Having a quote accepted by your client is one thing. Getting paid promptly is another.
The construction industry has a perfect storm of issues at present. Labour shortages, materials shortages, increases in material costs and high cost of living are putting pressure on tradespeople and their clients alike. No matter whether you’re building a new home or renovating, never has cash flow been so important for businesses in the wider construction sector. Unfortunately, some companies are folding under cash flow pressure. Prompt payment of invoices, in order to order materials promptly and pay staff and operating on time is crucial to maintaining business momentum.
How has Covid-19 impacted payments for small businesses?
Data from December 2020 has shown that payments are being made faster than pre-Covid payments. That’s good news for small businesses, with average payment times at 24.1 days – that’s 1.6 days faster than pre-Covid data. But is that fast enough? Payments requested on the 20th of the following month are beginning to be seen as old-fashioned. In fact, Xero is pushing for payments within 10 days of issuing an invoice.
How can we fix this? An innovative payment solution for the NZ service industry
IPromise secures Client payment before a project or service is started so businesses receive immediate payment on successful project completion. IPromise provides transparency and gives both Suppliers and Clients confidence to progress with the job as all funds are held transparently in a secure BNZ Trust Account.
What’s more, service businesses like tradies, architects and engineers can now enjoy increased protection for payment of a project or services, and get paid immediately when the agreed job is done. Their Clients enjoy a simple and safe way to control payments, thanks to the latest industry SaaS payments solution, IPromise. This web app is your fair and secure payment partner.
Whether you work in Professional Services, Construction, Consulting, Manufacturing, or any other service-based industry, IPromise will add payment security, improve cash flow, reduce administration time and enable open, easy communication for your projects.
