Leveling the playing field for Aussie small businesses

By Adrian Floate*

Australia’s payment problem It’s estimated that 82% of retailers close down due to poor cash flow.

You might think that ‘poor cash flow’ relates solely to a lack of sales or leads. In reality, many businesses are actually selling a substantial amount of products, but the time it takes to receive payment for these items causes significant financial strain.

This is where the hidden culprit in Australian business transactions is exposed, inefficient payment collection processes.

A staggering 53% of all invoices sent between Australian businesses are paid late by an average of 23 days. Another 20% has an incorrect amount, while another 20% are paid to the wrong business entirely.

For larger businesses with millions of dollars in equity, these late payments don’t cause critical strain. They have the funds and diversified revenue to survive the wait, and the resources to work through payment errors.

For smaller businesses with lower cash flow however, the long wait between receiving cash for goods sold, coupled with payment inaccuracies can cripple their entire operation.

Australian businesses exchange approximately 1.2 billion invoices annually with around 20 percent of those (240 million invoices) being debt owed to small business suppliers. With 53% of those payments arriving late, there is a huge amount of stagnant money not going to the businesses who need it. It means at least 127 million invoices are paid late each year to small businesses.

The financial strain this causes small businesses can lead many to fund missing cash flow from home loans and credit cards.

To compound the financial pressure on small businesses, COVID19 restrictions slammed the brakes on the worlds’ economy. Countless Australian businesses applied for business grants and job keeper payments from our Government and they had a very small time frame to qualify.

Most businesses were in a rush to cough up their financial data to the ATO and prove their revenue decline from the previous year, the number of eligible employees on their payroll, and the operating costs they had to meet to survive.

Ask any Australian business owner who applied what this process was like and most will confess it was

somewhere between challenging and a nightmare.

The reason? 85-90 per cent of the small businesses applying for Government funding lack systemised business processes and still use paper and spreadsheets to manage their business. Without digital processes to assist, compiling all the required information manually was a huge time drain on already struggling businesses.

The solution

E-invoicing. It’s an electronic, faster and innovative way to trade and it’s a direct solution to the paper problem Australian businesses face.

However, of the one billion invoices sent each year by Australian businesses, only 10-15% were E-invoices, the rest remain paperbased.

If all of these paper-based businesses implemented E-invoicing, an additional $100 billion would be injected into our national economy.

So why hasn’t E-invoicing taken off?

One of the main reasons is the assumption that it is an expensive technology to implement. E-invoicing tends to be custom-built software designed for large businesses who, owing to compliance obligations, are more invested in getting paid on time.

Small businesses yet to take on E-Invoicing technology are left with manual processes. Creating invoices through accounting platforms or Word documents and sending them out as PDFs via email or even posting hard copies to customers.

These manual methods require a significant investment in time from both the seller and buyer and ➤

requires the latter to manually enter data into their accounting system. This double data entry is prone to human error and contributes to the 15 percent of payment errors linked to all paper invoices.

E-invoicing attacks these flaws by sending invoices directly to a customers’ accounting system, ready to be approved and paid. There is no manual re-keying and a lower chance of errors.

Not only is this process faster, but it’s also much cheaper. Research shows it costs $30.87 to process one paper invoice, $27.97 per PDF invoice and only $9.18 per E-invoice for Australian and New Zealand businesses.

Paperwork is also directly linked to deforestation and global warming, with an estimated 10,000 - 20,000 sheets used annually by each office worker in traditional pen-and-paper businesses. That figure is likely higher for finance industries.

Additionally, it means the traditional lengthy reconciliation of reports becomes automated. Receipts are stored digitally and accessible at any moment with the click of a button.

While most Australian businesses have not made the switch to E-Invoicing, many governments worldwide have embraced the technology. The UK and Europe made it mandatory in 2008, while the US and India are currently exploring national E-invoicing frameworks.

Australia dabbled with E-invoicing back in 2016, when the Australian Tax Office pushed for a nationwide standard of electronic invoices. Soon after, the Digital Business Council was launched to create a national framework of standardising E-invoices.

Despite this, it wasn’t until 2019 when both Australia and New Zealand’s governments created a trans-Tasman plan to standardise electronic invoicing between the two in an effort to save $30 billion over 10 years.

To improve payment arrival time for businesses owed money, the Federal Government also advised E-invoices had to be paid within five days or interest would be added, as of January 1st, 2020.

The E-Invoicing landscape in Australia is changing, more rapidly since the effects of Covid-19 and a shift to digital business processes. New technologies are emerging to solve the issue of late payments.

How do businesses pay each other today?

Payments between Australian businesses are dominated by bank transfers using ABA files, a system

developed by the Australian Banking Association (ABA) in the 80s that operates through accounting software and enables multiple creditors or payees to be paid in a single internet banking transaction.

For accounting and payroll systems in most Australian businesses however, bank transfers have become its Achilles heel, due to its high risk of fraud exposure and minimal security.

Smaller businesses commonly pay their suppliers with direct debit, credit cards, bill payment services and custom payment tools implemented to meet the needs of larger organisations.

While these payment processes have been the norm for decades, they are solely for the benefit of one party and not the trading relationship.

In Business-to-Business (B2B) payments, both buyer and seller must create, process and reconcile each transaction. It wastes valuable time and resources and drives inefficiency between both parties.

B2B payments are significantly different from Business-to-Consumer payments (B2C) in their volume, frequency and value. 95 percent of transactions between consumers and businesses are made by card and frequently occur many times per week from multiple shoppers. There is also no need for consumers to pay multiple merchants or suppliers in a single transaction.

Because B2C payments happen more frequently and at a lower value, consumers have more readily adopted new payment technology. They are also more likely to favour contactless payment options and less interested in digital receipts, unless an item is expensive, comes with a warranty or is tax-deductible. While there are many custombuilt E-invoicing platforms that specifically benefit large Australian businesses, it is only now that affordable, flexible and powerful

E-invoicing software is being made available to smaller businesses.

Addressing the B2B payments needs

Market research has shown businesses are seeking these five components from a payments service: 1. Security and Certainty. When payments are made they reach the intended recipient without an interception. 2. Efficiency. The removal of human error and an increase in timesaving solutions. 3. Flexibility and Precision. The ability to pay one, three or 100 invoices in a single transaction. 4. Integration. A payment flow integrates end-to-end to ensure that the accounts receivable ledger of the supplier is in “sync” with the accounts payable ledger of the customer. End-toend integration automates and simplifies reconciliation by making the system determine missing transactions. 5. Speed. Immediate notification of transactions upon payment.

How new E-invoicing software is satisfying these needs

While standard E-invoicing technology helps avoid the financial headaches accompanied with outdated paper and PDF methods, many have their own hidden expenses that can sting businesses financially over time.

The most commonly used electronic bill payment systems in Australia charge around $0.70 per transaction depending on your bank. Most businesses absorb this cost for the benefit of their customers and offer alternative payment methods in an attempt to remove these fees.

While these costs are seemingly innocuous, depending on the number of transactions your business issues each month, these fees can add up to massive expenses over time.

Most banks and credit unions also only accommodate a set number of ‘free’ transactions each month. Once that limit threshold is exceeded, your business will cop additional charges.

New payment collection systems that enable E-invoicing can process more than $25,000 in a single statement payment, satisfying the volume of B2B transactions. Businesses using these new payment technologies no longer cop fees from banks or credit unions for exceeding their daily transaction threshold.

At Cirralto we have recently launched a product we think will revolutise the payment sector. SpendaCollect, a digital platform that drives cashflow by connecting the customer and merchant to a single source of truth.

Modernised payment collection systems, like SpendaCollect, can also integrate with inventory management tools, point of sale software and accounting systems in real-time, providing seamless business processes and improved customer engagement.

New payment tech also provides a better experience for a business’s customers, allowing them to track, group and pay one or all of their outstanding invoices at once via more payment methods. Not only does this save time removing the burden of chasing down invoices, it also provides more financial flexibility for the customer.

By empowering small businesses with better payment collection capabilities every business regardless of size can be on the same page for faster and more accurate payment collection, making the goal of attaining an extra $100 billion into our national economy a welcome and highly-realistic target.

*Adrian Floate Managing Director at Cirralto Email: Adrian.Floate@Cirralto.com.au Tel: 0412 377 877

“New payment collection systems that enable E-invoicing can process more than $25,000 in a single statement payment, satisfying the volume of B2B transactions. Businesses using these new payment technologies no longer cop fees from banks or credit unions for exceeding their daily transaction threshold.”