Designed as a digital platform for small businesses, Xero recently made a “shocking” revelation. According to the findings of the Xero Small Business Insights program, the cost of late payments for small businesses in New Zealand has increased by 81% - from $456 million in 2021 to $827 million in 2023.
According to Bridget Snelling, Xero’s country manager, “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.”
She adds that most large corporations in the country are using small businesses for “accessible capital,” thus delaying their payments, which is substantially impacting small business operations.
Renee Joblin, who runs a small engineering firm, Joblin Engineering in Canterbury, is currently waiting for over $10,000 in overdue payments and says, “My family has to go without groceries because I have to pay my rent and staff wages.” She says larger corporations often set their payment terms – and don’t pay a deposit on a larger engineering project.
Other small business owners complain about late payments creating a “vicious” cash flow problem, which lasts for over a year.
According to New Zealand’s Ministry of Business, Innovation, & Employment, there are around 546,000 small businesses in the country – comprising 97% of all companies. Overall, they contribute over 25% of New Zealand’s GDP – and account for 29.3% of employment.
While the problem of late payments remained between 2021 and 2023, the country’s economy is now facing the problem of high inflation. Snelling explains, “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 especially hard.” She says when small businesses face a severe cash flow problem, it can have a detrimental impact on the overall economy – and even impact the standard of living for its citizens.
Following the repealing of the 2023 Business Payment Practices Act, new small businesses are being severely impacted by limited growth and market opportunities.
While large corporations also face high inflationary pressures, they have more bargaining power than small companies. Small businesses do not have adequate cash reserves to get through the entire month. Alan McDonald of the Employers & Manufacturers Association observes that small businesses that are dependent on larger companies often struggle due to delayed payments.
He talks about the “knock-on effect,” where if one company doesn’t get paid on time, a dependent supplier or vendor also doesn’t get paid.
According to the New Zealand Institute of Economic Research, there could be a 20% rise in the number of small businesses adopting cloud-enabled business tools in the near future. This can potentially add up to $7.8 billion to New Zealand’s GDP numbers.
Digitalization is the way forward for small businesses to counter the payment problem. To simplify the payment process, small businesses can opt for digitalization methods like e-invoicing and pay-now buttons. Timely invoice reminders and more payment options can also help small businesses receive their payments on time.
This is why solution providers like Xero are building digital payment solutions for the benefit of small businesses in New Zealand. Along with digital solutions, small businesses can overcome their cash flow problems by working with their accountants and reducing their expenses. With its small business invoicing solution, Xero is tackling the late payment problem by making large corporations commit to clearing their invoices within 10 business days.
This is aligned with the New Zealand government’s commitment – with 95% of government-owned agencies meeting this requirement.
Digitalization of the payment system is the way forward for addressing challenges like late payments and rising business costs. With the aid of digital payment tools, small businesses in New Zealand can unlock their business potential – and make a substantial contribution to the country’s economic future.