Xero NZ country manager, Bridget Snelling, has challenged big businesses to shorten their payment times to small businesses to help them overcome the increasingly challenging economic situation and enable the economy to better grow. Her comments at a recent trans-Tasman meeting come shortly after a study done by the Institute of Economic Research (NZIER) found that late payments were costing small businesses an estimated NZ$456 million a year.
Small businesses were found to be struggling with harsh economic conditions including high inflation, high interest rates and increasing wage growth. Cash flow was identified as a key challenge, with late payments forcing many to take up loans. Ensuring payment of invoices within 10 days is predicted to help ease economic conditions and boost growth.
Snelling noted that some big businesses were mishandling their dealings with smaller businesses by often delaying payments by as much as over 90 days. An earlier Xero report found that 37% of payments owed to small businesses were between one to 30 days late. 6% were 31 to 90 days late, while another 2% were over 90 days late.
Curiously, these delays exist despite some big businesses reporting record-breaking profits. Despite many households struggling to keep up with the growing cost of living, some businesses have been exorbitantly raising their prices without suffering a decline in demand, enabling them to enjoy profit expansion while adding on to inflation. The situation has been termed ‘greedflation’ by some economists, and become an increasingly prevalent phenomenon in many parts of the US and Europe.
Others like University of Waikato Professor of Economics, Michael Cameron, are however sceptical of the greedflation argument, especially as to how it would apply to the New Zealand business landscape. He notes that some of the reasons behind high prices in the economy differed from those in other parts of the world.
Snelling’s Australian counterpart, Will Buckley, has also acknowledged cash flow as a key stressor of businesses and recommends the use of cloud accounting software to gain a clearer insight into cash flow and expenses. He also advises businesses to look at ways of streamlining customer payments through such measures as digital payment systems that will provide more flexibility and visibility over transactions.
Digitisation has also been recommended by Snelling as a means of boosting New Zealand’s productivity rates which have reportedly fallen below the OECD average. Investment in digital services is expected to drive economic growth with a 20% uptake in cloud-based technology estimated to boost GDP by $7.8 billion.
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