Better late than never? The ‘contagion effect’ crippling small businesses
Small businesses struggling in Australia’s sluggish economy continue to fight an uphill battle in 2025, as data shows late payments to small and medium-sized enterprises (SMEs) have surged to their highest level in four years, choking their finances and in some cases triggering bankruptcy.
Larger businesses are taking longer to pay small businesses, dragging out payment times from 30 to 90 days, or more. With business-to-business payment defaults more than doubling in the past 12 months, this puts significant strain on cash flows, making it more difficult for SMEs to stay afloat and meet their financial commitments.
Small businesses are being hit by late payments.Credit: Ben Symons
One source from a labour hire firm, speaking on condition of anonymity as they weren’t authorised to do so, said they had noticed a rise in some of their clients stretching out payment terms from seven or 14 days up to 120 days, taking up to eight times longer to pay their bills.
“It puts a lot of pressure on cash flows, and it’s the biggest companies who make the slowest payments,” the source said. “It only takes one bad payer to have this flow-on effect … It really snowballs through and affects every business in the chain. That’s where it gets frustrating, even though you do everything you can.”
Beyond limiting cash flows, late payments also prevent SMEs from investing elsewhere in a timely manner – meaning there is an unquantifiable opportunity cost associated with it.
“You spend your time chasing debts when your time should be spent doing other things, such as training your staff, visiting your clients – but everyone’s running around trying to collect debts, provide invoices, proof of hours and all these sorts of things because you need them. You can’t operate without it,” the source said.
Companies going bankrupt as a result of late payments could create a domino effect which affects entire supply chains, says McGrathNicol partner Kathy Sozou.Credit: Andy Wong
As a result, their labour hire company, which sends staff on temporary hire to various companies across different industries, has started pulling workers out of companies with overdue invoices.
“It’s not beneficial to us, it costs us more than we make,” they said.
