Australian manufacturers in $8b business black hole

Manufacturers are among hundreds of mid-sized Australian businesses swimming in $8 billion worth of debt to their suppliers

 According to new research, $2 billion is currently overdue while manufacturing companies in Australia owe an average $111,000.

An American Express survey of 355 manufacturing CFOs has found that companies worth between $2 million and $300 million struggle most with delayed or late payments of suppliers compared with other sectors.

Around a quarter (39 per cent) were found to be unable to reconcile invoices at least every other month, compared with the mid-market business average of 30 per cent.

 Of the outstanding supplier payments in the manufacturing industry, 25 per cent are overdue.

This research comes as a nationwide inquiry commissioned by The Australian Small Business and Family Enterprise Ombudsman is due to release recommendations on possible solutions aimed at resolving the ongoing issue of late-payments for small and mid-sized businesses. 

It is widely acknowledged that outstanding payments can cause significant cash flow problems for suppliers, many of whom are small or mid-sized businesses, and leave them unable to balance monthly income with outgoings.

Martin Seward, vice president for Small and Medium Enterprises at American Express Australia, said that the issue of delayed or late payments was not only impacting suppliers, but could also be costing mid-sized Australian businesses, including the construction industry, billions of dollars every year.

 “There is no doubt that suppliers rely on timely payment, with many going as far as to offer financial incentives for early payment,” Seward said.

 “Around two thirds (66 per cent) of mid-sized construction businesses last year secured early supplier payment discounts, at an average value of $32,000, leaving them open to extra cash flow to reinvest back into the business for research and development or something as simple as staff recognition programs.

 “It’s encouraging to see that businesses and their suppliers can both benefit from preferential payment arrangements, but concerning that not all Australian mid-sized manufacturing businesses recognise the value of timely payment – both to their suppliers and their own business.”

 Almost all manufacturing industry CFOs surveyed said they would value the opportunity to pay suppliers on time, however cash flow pressures were cited as a key factor when deciding how to pay suppliers.

Given the opportunity to extend cash flow for up to 50 days, around one third of manufacturing CFOs (31 per cent) said they would prioritise faster payment of suppliers.

“We have seen CFOs who deploy credit as part of their cash flow management toolbox and benefited from the flexibility to pay suppliers early, while keeping capital in their business for longer. Using credit can also offer other benefits, such as reward schemes,” Seward said.   

“Despite a positive outlook for mid-sized organisations, with 65 per cent of businesses forecasting growth in 2017, cash flow pressures still constrain mid-sized businesses from achieving their full growth potential.

“In an increasingly competitive economy, today’s CFO will not want to miss out on opportunities offered by effective and efficient cash flow management.”

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