SMEs Bearing the Brunt of Late Payments as Industries Extend Terms

Small and medium enterprises (SMEs) across Australia are facing growing challenges as payment delays continue to rise, putting pressure on cash flow and business sustainability. With economic conditions tightening, many businesses across most industries are experiencing longer payment terms, making it difficult to manage working capital effectively. New insights from Moneytech, alongside data from CreditorWatch’s trade receivables analysis, highlight a concerning trend in overdue payments.

Recent data from CreditorWatch’s Business Risk Index indicates that Australian businesses are facing significant financial challenges as they enter 2025. Late payments have reached their highest rate since March 2021, with overdue business-to-business (B2B) payments continuing to rise, particularly in sectors such as construction and hospitality. With B2B payment defaults – one of the strongest predictors of insolvency – more than doubling in the past 12 months, the increase in late payments is placing significant cash flow pressure on SMEs, making it harder for them to meet financial commitments and sustain operations.

Insolvencies have surged by 57% over the past year, reaching record highs, while the average business failure rate across all sectors stands at 5.1%, with projections to rise to 5.6% in the coming year. Legal actions against businesses remain elevated, partly due to intensified debt recovery efforts by the Australian Taxation Office (ATO), adding further financial strain on SMEs already struggling with delayed payments and restricted cash flow.[2]

Industries such as construction, manufacturing, transport and wholesale trade are among the worst affected by late payments. “Late payments put significant strain on small businesses, especially those operating in sectors where cash flow is already tight,” said Moneytech CEO Nick McGrath. “With many SMEs also carrying outstanding ATO debt, the pressure on cash flow is even greater, making it critical for businesses to receive payments on time to meet their financial obligations.”

Payment delays in sectors such as manufacturing and transport create knock-on effects throughout the supply chain. Manufacturers waiting on payments from large retailers and wholesalers face growing cash flow gaps, delaying their ability to pay suppliers and staff. In the transport sector, long payment cycles mean operators often have to cover fuel, maintenance, and wages well before receiving payments from customers, leading to financial stress. Construction is also a persistently late payer due to payment structures that often delay contractor payments until project completion which sees subcontractors struggling due to the complex contract structures. Similarly, retail and wholesale trade businesses are experiencing extended payment terms, exacerbating cash flow challenges for their suppliers.

SMEs supplying to these industries often endure some of the longest payment terms, ranging from 30 to 90 days or more. “For SMEs, these delays mean making difficult decisions about their own financial commitments, which can stifle growth and innovation.” McGrath added.

Larger businesses, in particular, are increasingly extending payment terms, leaving smaller suppliers in financially vulnerable positions. While the Australian government has introduced mandated payment terms for large businesses and government entities to support SMEs, such as the Payment Times Reporting Scheme (PTRS) and supplier payment policies requiring payments within 20 to 30 days, compliance remains inconsistent, adding further strain on smaller enterprises.

For investors and business leaders, understanding these payment trends is crucial. “By recognising these patterns, businesses can take proactive measures to mitigate risk and ensure financial stability,” said McGrath. With the longer payment terms, SMEs should look to alternative financing solutions, such as Moneytech’s Debtor Finance, to bridge cash flow gaps. Sectors experiencing extended payment terms may also face heightened credit risks, impacting overall business stability.

“As economic uncertainty continues, it’s more important than ever for SMEs to take proactive steps to manage working capital while advocating for fairer payment practices,” said McGrath. “The data highlights the need for improved payment discipline across industries, ensuring SMEs are paid on time to support sustainable business growth.”

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