Late bill payments surge, more trouble ahead for the economy?

With government stimulus measures coming to an end, Australian businesses are increasingly finding it hard to pay their bills on time.

Research by credit agency Illion found late payments by businesses spiked by 20% for the September 2020 quarter, averaging a late payment time of 11 days.

This is particularly alarming because, according to Illion, businesses tend to pay their bills on time during the September quarter before worsening in the December quarter.

"Australian businesses have been hit hard by the COVID-19 pandemic. This is becoming increasingly apparent as they begin to fall behind with their bills," said Illion CEO Simon Bligh. 

"As we head into the holiday trading period - a time when we typically expect to see more invoices being paid late anyway, we are likely to see a sharp rise in delinquencies, especially as government stimulus efforts run out."

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With government stimulus packages for businesses gradually ending during late 2020 and early 2021, businesses could struggle even further with vital cashflow sources cut off. 

"Australian businesses face a grim holiday season ahead as more businesses fail to pay their bills on time. The end result could be a tidal wave of business failures and job losses in early 2021."

No industry has been spared by COVID, with the late payment of bills applying to every sector. 

In particular, manufacturers, wholesalers and retailers recorded worsening late bill payment times with consumers reluctant to spend amid growing economic uncertainty and COVID crippling supply chains.

The construction sector hasn't been spared either, despite government stimulus measures like HomeBuilder and the extension of the First Home Loan Deposit Scheme designed to prop up the industry.

Late payment times averaged 10.5 days with payment times worsening by 2% since the last quarter.

Smaller businesses are also increasingly finding it harder to pay their bills on time, despite big business being the worst offenders.

Over the last 12 months, companies with fewer than 200 employees saw late payment times worsen by 23% while big businesses saw a deterioration of 14%.

Surprisingly, Victoria recorded the second-lowest deterioration in late payment times of all states despite being the hardest hit by COVID.

Mr Bligh said this could be due to the state's manufacturing sector.

"Victoria has fared better than most other states in Australia, despite having the harshest lockdown and the highest number of COVID cases," he said.

"While this is surprising, it may be due to the state's large manufacturing base being propped up by generous government stimulus measures. Once this begins to run dry in early 2021, we could be facing an early economic winter."

Despite Tasmania being named Australia's best economy earlier this week, the report found that Tasmania actually fared the worst, with late payments deteriorating by 10 days, up 36% compared with record lows just 12 months ago. 

New South Wales, which represents about a third of Australia's economy, saw late bill payments increase by 20.7% to 11.3 days, roughly in line with the national average.