New data shows small businesses are being paid late, but there's cautious optimism things may improve once large firms are forced to divulge their payment track record
Nicola Mossman owns and operates personal care store Real World in Hastings. Selling plant-based hand soap, candles and cleaning products, the company has big contracts with corporates such as hotels as well as retail stores that stock their products.
Delayed payments are an issue with both big and small businesses, she says. “We do deal with a couple of large corporates and their payment terms are 60 days. And as a small business, we can't do that. So we negotiate the 20th of the month or 30 days, but they're often slow to pay.
“I think a lot of it comes down to cashflow and people are really hurting at the moment, especially small business, which are our main customers … and I think they just don't have the cash to pay probably because they are waiting for their invoices to be paid, so it's quite a knock-on effect.”
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New data from the accounting software firm Xero shows small businesses are paid, on average, 6.4 days late.
Next year, New Zealand is introducing a new disclosure regime, brought in under the Business Payment Practices Bill. By March 2025, companies making more than $100 million will be required to publicly report information such as their average time to pay an invoice. From later in 202,5 businesses with revenue over $33m will also be required to report.
But a scathing review of Australia's payment disclosure regime found it was largely ineffective in helping small businesses get paid faster – and there are mixed views on whether New Zealand's will be any better.
Large businesses with lengthy payment timeframes can cripple small businesses that have no sway to negotiate, in effect allowing the larger business to use their smaller suppliers as a source of free credit.
Mossman says things have become tighter in the past six to 12 months. “It’s the business economy and retail being a bit slow at the moment," she explains.
“We've been going for seven years and a lot of our retailers we've been with from the start, and you sort of build up a bit of a trust model with them so you know that things are a bit tight for them. So we do have a little bit of leniency when we can, but it would be great if everyone paid on time.”
Mossman has only been burnt once – a $2000 debt that had to be written off. It’s a mistake she hopes to only make once, and now carefully does her due diligence on potential trade customers.
“It's just working in identifying the companies that you sort of want to align yourselves with and want to work with. Because you know that they could pay."
A disclosure regime would help, but only if you were planning to get involved with a larger company.
Data from the accounting software firm Xero, released today, shows small businesses were paid, on average, 6.4 days late in the three months to September, a figure that has not significantly reduced since mid 2020, but it is lower than it was six years ago.
Late payments by industry
On average a small business waits 24 days to be paid from when it sends out an invoice.
Xero New Zealand country manager Bridget Snelling, who has long advocated for a 10-day payment period, is optimistic the new regime will make a difference.
“I think it's a step in the right direction," she says. "We've seen in other markets that they're even more aggressive with what their expectations are, and how transparent they are, now there's naming and shaming.
“And of course, with transparency comes knowledge, with knowledge comes power. People are more inclined to have conversations about who is good to deal with, which ones to avoid and ultimately, we're a small country, a small economy and I think that level of transparency in itself will make a big difference.”
Australia introduced a similar regime in January 2021, but a report published last month by Australia's Treasury found it had only imposed unnecessary regulatory burdens and had been largely ineffective in reducing payment times. “The reporting requirements are onerous for reporting entities and create a confusing, clunky and cluttered dataset," the Treasury said.
It found the majority of small businesses did not use the database, “and more fundamentally” according to the reviewer economist and retired Labor Party politician Craig Emerson, it was designed around the “flawed assumption that small businesses are in a position of market strength to pick and choose among prospective large-business customers”.
That was also a concern voiced by Chartered Accountants Australia and New Zealand when the Business Payment Practices Bill was going through the New Zealand Parliament.
“Some members have questioned whether small businesses have a genuine choice to accept or reject a proposal from a large business on the basis of their payment times. A small business by nature tends to welcome new contracts particularly from larger customers, and indeed, needs to do so to grow,” its submission said.
Indeed a disclosure regime for New Zealand was categorised in the “off the table” section during the 2020 consultation on how to improve business-to-business payments. A subsequent round of targeted consultation took place in mid-2021 when it was back on.
In the Emerson review, he said the purpose of reporting information should be to put reputational pressure on large businesses, and so the dataset needed to be easier to understand.
“The impenetrability of the data has also limited media coverage and any associated reputational pressure on large businesses to improve their payment performance. The review concludes that the object of the Act – to make payment times information publicly available in order to “create incentives for reporting entities to improve their payment terms and practices” – is a worthwhile goal but has not been met.”
He did not write off the disclosure regime idea, instead detailing 14 recommendations to improve it, saying the idea "had merit".
One of those recommendations was to not mandate maximum payment times, something New Zealand consulted on, but ultimately did not move forward with because of a lack of evidence it would improve things for small businesses.
The data from Xero showed payments were generally later in the manufacturing and real estate sector, and not as late for those working in agriculture and construction.
