Prompt payments expected to prop up small business cash flow

Public sector leads the charge on faster invoice payments.
Public sector leads the charge on faster invoice payments. Photo credit: Getty.

Small-to-medium sized businesses working with Government departments are about to be paid much sooner - and its hoped that the private sector will follow suit.

Under a series of initiatives recommended by the Small Business Council (SBC), 34 Government departments are committing to settle local invoices within 10 business days by June 2020.

According to Statistics New Zealand, small businesses of up to 20 staff make up one third of Kiwi businesses - and insufficient cash flow is often cited as a roadblock to survival.

Stuart Nash, minister for small business, said that as on any given day more than half of New Zealand small businesses are owed at least $7000, prompt payments will make a significant difference.  

"We know late payments and long payment terms are some of the biggest sources of stress and cash flow problems for small and medium enterprises (SMEs)," Nash said.

Every year, government agencies spend tens of billions of dollars on goods and services, almost one-fifth of New Zealand's GDP. 

"Many small businesses rely on this work to make a living. We can help by ensuring government agencies pay as fast as they can," Nash added.

The target set for Government departments is to pay 95 percent of domestic invoices in 10 business days, which will be monitored by Treasury and Ministry for Business, Innovation and Employment (MBIE), who will report to Ministers.

"[Prompt payments] sets an example for improved business-to-business payment practices too," Nash said.

Tamara Liebman, commercial lawyer at Calibrate Legal, said that in her experience working with small, owner-operator businesses, the initiative is a step in the right direction.

"These businesses can often find themselves landed with payment terms that mean they're effectively providing credit to larger businesses.

"Unfortunately, they don't usually have the bargaining power to negotiate better terms," Liebman said.

The prompt payment initiative is to be supported by automated e-Invoicing, enabling data to be exchanged between payment systems. If they don't already have one, businesses are advised to register for a New Zealand Business Number (NZBN) to support the process.

"The NZBN enables e-Invoicing and can be fully integrated into procurement and finance systems," Nash advised.

In addition to prompt payments, online resources such as the 'Funding Explorer' will be available to business owners and a range of other SBC-led initiatives are in development.

Prompt payment from the majority of Government departments is expected to be in-place by mid-2020. As having ongoing cash flow is vital to small business survival, it is hoped that the benefits of being paid on time will spill over to the wider economy.