Small businesses’ late payment pains know no borders.
This week’s B2B Data Digest uncovers the global cash flow threat of extended supplier payment terms, with the matter reaching from the U.S. to Australia and beyond.
David Wander, Davidoff Hutcher & Citron LLP, representing several Sears vendors and creditors, told the publication that an initiative by Sears to claw back payments it had already made to suppliers before its bankruptcy filing has an unusually large scope.
“Small businesses who were vendors of Sears will be hurt,” he told the publication, pointing to added legal fees and financial losses related to any settlements SMBs reach. “Remember, the vendors did nothing wrong. They simply got paid what they were owed, but the payment came within the 90 days prior to the bankruptcy filing.”
South Africa Sounds Late Payments Alarm
In South Africa, financial service providers have begun to voice their concerns about the impact of late payments.
“Delayed payments have a direct impact on working capital and can severely constrain growth capacity,” warned Damian Baker, Manager of Business Process Solutions at SNG Grant Thornton, according to recent Gadget.co.za reports. “That's why it’s crucial to set out your payment terms, invoicing dates, and due dates in contracts from day one to eliminate ambiguity.”
Australia Policymakers Eye Supply Chain Finance
Australia, meanwhile, has kept the late payments challenge in the headlines as policymakers begin to single-out notorious late-payers. Senator Rex Patrick, for example, recently attacked the nation's largest construction firm, CIMIC, for its supplier payment practices, slamming them as a “material breach of their social license,” according to reports in The Australian.
The remarks came as Australia’s small business ombudsman Kate Carnell issued recommendations to expand access to supply chain finance among smaller suppliers, though pressed that these businesses should be paid in 30 days, reports said.
Jumping on board with that sentiment is Lex Greensill and his Greensill group, which provides supply chain financing to major corporates — a practice that has raised concerns in Australia and elsewhere, with critics arguing supply chain financing forces small suppliers to accept pay cuts while their customers expand payment terms. Now, Greensill has said that he will dump corporate clients in Australia that continue to squeeze their small suppliers, The Australian reported.
The U.K. Closes In On Construction
The U.K., too, continues its own late payments fight, with the Association of Accounting Technicians recently describing the government's own efforts to combat late payments in the construction sector as "insufficient."
"It is fair to say that late payments affect the whole economy, but their impact in the construction sector is particularly pronounced," wrote the AAT's head of public affairs & public policy Phil Hall in a PBC Today article.
India's TReDS Challenges
Finally, in India, new concerns have emerged over the nation's TReDS platforms, which were introduced in 2017 by the Reserve Bank of India to connect small businesses to invoice financing via digital platform in response to their ongoing challenge of receiving late payment.
While proponents say the platform can be effective at promoting stronger cash flow, critics say corporates are skeptical of the platform, for fear that uploading documents to the platform could reveal sensitive information about their supply chains to competitors. Recent reports in the Financial Express pointed to the opportunity to close "loopholes" in the platforms that currently exacerbate the late payments challenge by leaving businesses to complete B2B transactions offline.
Below, PYMNTS breaks down some of the key data points behind these late payments stories:
65-day payment terms by Australian construction giant CIMIC have come under fire by policymakers like Senator Rex, The Australian reported, who claimed the company is using its vendor base as a personal bank for the company. The conglomerate recently posted a $1 billion loss for its 2019 financials, and began extending payment terms from 45 days to 65 days last September, according to reports.
91 percent of South Africa SMBs faced a late payment last year, according to research from small business accounting platform Xero. The firm published a new report about the rising threat of late payments in the country, which found that a small business is owed an average of more than $6,750 at any given time. As a result, Xero researchers found, one-fifth of small businesses are struggling to make their own necessary payments, including to suppliers, creating a catalyst of cash flow bottlenecks in the economy.
730 preferential transfer lawsuits were filed recently by Sears to claw back supplier payments, Bloomberg reported, noting that the lawsuits were filed against vendors that received payment within the 90 days before Sears filed for bankruptcy — a period known as the preference period. The lawsuits add to the previous 400 filed last November, with reports noting that the estate is likely to file even more. In total, as many as 2,000 suppliers could be affected.
More than $981 million in receivables financing was facilitated via India's TReDS platforms in FY19, reports said, with analysts expecting this figure to climb exponentially in the year ahead. Yet reports say the TReDS system must be fully automated to ensure even the smallest of micro-businesses can benefit by submitting unpaid invoices online to ease the pain of late payments, while also ensuring that any invoices unpaid after 45 days can be automatically directed to be paid through small businesses' banks.