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Australian small-business owners are becoming increasingly concerned about missed payments from other businesses facing insolvency, data from the ombudsman reveals.
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SME owners ‘fearful’ about not being paid, says ASBFEO
03 September 2024
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New research has highlighted the level of distress from small-business owners who fear they will not receive owed money from other failing businesses, according to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
ASBFEO said there have been a 50 per cent increase in requests for help from distressed business owners fearful of insolvency.
SME owners have also expressed concern towards not being able to meet their own financial commitments if they remain unpaid by other businesses, according to the results.
The ombudsman Bruce Billson said payment disputes are an “early warning sign” of cash flow problems that can have a ripple effect through the business community.
“Cash flow is the oxygen of enterprise but difficult conditions mean when one party is late in paying, it can cascade through the supply chain,” he said.
“Payment disputes are by far the greatest area of concern for small and family businesses and now accounts for 42 per cent of assistance cases, up from 36 per cent last year.”
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An annual summary of assistance provided to small and family businesses by ASBFEO showed there were 6,254 help requests in 2023–24, up 10 per from the year before.
However, the number of requests surrounding insolvency has experienced a 50 per cent increase.
This includes both businesses that are considering insolvency and businesses concerned about other insolvent businesses owing them money.
According to the ombudsman, since its establishment eight years ago, it has handled almost 47,000 cases.
Most of these involved disputes small businesses had with other businesses or government agencies.
Billson said the current rate of increased insolvencies is causing a considerable level of stress.
“Over the past year, small and family business owners have become increasingly worried about being paid as they face challenging business conditions which has seen a record number of corporate insolvencies,” he said.
“Cost of living pressures for households are cost of business pressures for small businesses such as rising input costs such as wages, energy, insurance and rent while the Tax Office has resumed its tougher enforcement approach.”
According to the recent research, many small businesses are drawing on their cash buffers to keep their business afloat; however, one in four have no cash reserves and 18 per cent have less than a month’s cash on hand.
“The business owner will usually pay themselves last after paying their bills and staff, so slow payment can needlessly amplify the risks of business ownership,” Billson said.
Figures from the ATO have validated the level of worry SME owners have reflected as 46 per cent of small businesses did not make profit in the most recent year of accounts available.
The ATO data also highlighted that three-quarters of self-employed business owners, whose business is their livelihood, are earning less than the average total weekly full-time wage.
Billson said there have also been concerns and disputes with SME owners and Big Tech digital platforms.
The ASBFEO said it has tried to be active in directly seeking resolutions for SMEs, but some delays controlled by these digital companies last for months that can have devastating impacts on a business and its reputation.
“The number of cases we’ve seen involving a small business having a problem with a digital platform has more than doubled since July 2022,” Billson said.
“Digital platforms have fundamentally changed the way small businesses connect and sell to their customers. Yet when there is a problem, such as having an account shut down after being hacked, solving it can be a nightmare.
“In too many cases, when there is a problem, the digital platform providers require a time and resource-poor small business to navigate the most elaborate maze of dead-ends and blockages.”
ASBFEO said it provides help in any way it can to SMEs, including mental health support, tools, tips, a Tax Concierge system, or referral to the relevant dispute resolution agency depending on the nature of the issue.
Billson said the ombudsman does everything in its power to provide a level of relief and support to struggling SMEs.
“We strive to help small businesses get back to business as fast as possible and pleasingly nearly two-thirds of the cases that come to us are helped quickly by our call centre or assistance team providing useful information and guidance to resolve disputes,” he said.
“We can’t guarantee that every small business will succeed but it is our mission to provide all the help we can for those who want to start, grow or transform a business and that no business fails because the owners didn’t know about something that might have helped.”
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