Xero, the global small business platform, has reported a significant 81% increase in the cost of late payments to Kiwi small businesses, surging from about $456 million in 2021 to $827 million in 2023.
This data is part of the Xero Small Business Insights program, which reportedly makes use of anonymized and aggregated data to track the performance of, and improve understanding about, small businesses.
Bridget Snelling, Country Manager – Aotearoa New Zealand at Xero explained that these conditions have meant a lot of money that could actually be in the hands of small businesses is now unfortunately locked behind large corporations not making their payments in a timely manner.
Bridget added that they know many larger organizations use their small business community as a bank of easily accessible capital, holding out on paying invoices to support their own operation.
When the Business Payment Practices Act 2023 was repealed, the Ministry of Business, Innovation and Employment had reportedly acknowledged late payments were an issue for large market participants.
As noted in the update, the impact of these late payments is considerable, locking a lot of funds out of the small business economy, thus restricting growth, and preventing new businesses from succeeding.
Xero claims that it has advocated for addressing late payments and has reportedly called for all large businesses to commit to paying invoices within 10 business days – as Xero has with its small business invoices.
This is in line with the New Zealand Government commitment – with 95% of government agencies reaching this benchmark.
Although late payment times were, for the most part, unchanged between 2021 and 2023, small businesses faced the costly challenges of operating in a high inflation economy.
Snelling added that when inflation and interest rates are high, the value of having positive cash flow is so much more important.
In 2023, late payments hit small businesses quite hard.
And these factors are a major reason why the cost of late payments to Kiwi small businesses was more than three quarters of a billion dollars last year.
But Snelling also notes that while the challenging economic conditions persist, there are opportunities for the small business sector to grow.
Snelling also noted that they now encourage Kiwi small businesses to work with their accountant or bookkeeper to stay on top of rising costs and smooth out expenses, as well as investigate the plethora of digital tools available to help reduce the common barriers to late or missed payments, which in turn helps them recoup their costs faster.
Financial modeling by the New Zealand Institute of Economic Research shows a 20% increase in the number of businesses adopting cloud-powered business tools in the future could add up to $7.8 billion to Aotearoa New Zealand’s annual GDP through improved productivity.
As stated in the update, digitalization is a key piece of the payments puzzle for Kiwi small businesses.
Snelling added that it is vita that they support small businesses to embrace digital tools, especially those that make the payment process simpler like eInvoicing and using pay-now buttons, to unlock their full economic potential.
At Xero, they claim to be committed to building payment solutions to make it easier for small businesses to make and collect payments more seamlessly, while maintaining a healthy cash flow.