Opinion piece by the Ombudsman Bruce Billson.
Originally published in the Canberra Times.
Mary runs a small civil construction business but one of her customers, another small business, had not paid their $20,000 bill for 180 days.
The delay, well beyond the usual payment terms of 30 days, was having significant flow-on consequences for Mary as it left her without sufficient cash to pay her suppliers.
After repeated attempts to contact the company that owed her money and even offering a payment plan because she wanted to keep the other business as an ongoing customer, Mary called the assistance team at my agency, the Australian Small Business and Family Enterprise Ombudsman.
Our case manager got involved and Mary was paid the full amount she was owed.
Mary was lucky but sometimes the result is not as good, and the business might never be paid what they are owed.
Over the past year, small and family business owners have become increasingly worried about being paid as they face challenging business conditions which has seen a record number of corporate insolvencies.
Requests to my agency from distressed business owners who are fearful another business who owes them money has become insolvent or who are worried about their own ability to meet their financial commitments has jumped by 50 per cent.
Payment disputes are by far the greatest area of concern for small businesses and now account for more than two out of five of our assistance cases.
The construction industry had the highest number of payment disputes, while those in the hospitality sector tripled over the past 12 months.
Payment disputes are an early warning sign of a cash flow problem and can have a ripple effect that threatens the viability of other businesses.
Cash flow is the oxygen of enterprise, but difficult conditions mean when one party is late in paying, it can cascade through the supply chain.
Vicky, who runs an events business, was owed $10,000 by another business who had stopped paying her and had cut off any communication. She called us and we provided advice which got the two businesses talking again. They were able to work out a payment plan and preserve their commercial arrangement.
Similarly, Anthony, who runs a TV repair business, contacted us when another business he had been working with for five years, suddenly stopped paying him. We helped negotiate a payment plan so both businesses could stay afloat.
Many businesses are drawing on their cash buffers to keep their business afloat. Recent surveys have found nearly one-in-four small businesses have no cash reserves and 18 per cent have less than a month's cash at hand to fulfil their obligations.
The business owner will usually pay themselves last after paying their bills and staff, so slow payment can needlessly amplify the risks of business ownership.
For small and family business owners, their identities are interwoven into their business and the stakes are so much higher than just a job. Many have invested a lifetime - and put their life savings and family home on the line - to build up their business. Nearly half of outstanding small business debts are secured by residential property.
Matthew nearly lost his home when he took out a loan, secured by the property, to pay other debts for his business with a lender who was not a member of the Australian Financial Complaints Authority. After defaulting on the loan, he contacted us and we discovered he had already paid more in loan repayments than the total loan. The lender agreed to waive the remaining debt and remove the security over the home. Before taking out any new loans, Matthew said he'd do the quick online check to ensure a lender is an AFCA member.
Many entrepreneurs seek to build their business online. This has opened a world of possibilities to win customers. Julie uses a well-known social media digital platform to run her small consulting business, but she was hacked and locked out of her account.
The hackers used Julie's credit card that was linked to the account to fraudulently ring up hundreds of dollars of charges.
Julie was left stranded because the digital platform told her she needed to log in to her account to report that she was locked out of her account.
Julie is one of hundreds of small business owners who have faced this problem over the past year and, after contacting us, we were able to get her account reinstated and the fraudulent charges on her credit card refunded.
The number of small businesses having problems with a digital platform has more than doubled since July 2022 and now accounts for one-in-four of our cases.
Since being created eight years ago, ASBFEO has handled almost 47,000 cases, most of which involve disputes small businesses have with other businesses or Australian government agencies.
We strive to help small businesses get back to business as fast as possible. Pleasingly, nearly two-thirds of the cases that come to us are helped quickly by our call centre or assistance team providing useful information and guidance.
Some cases take longer and the ASBFEO assistance team provide intense one-to-one assistance with no cost or low-cost solutions. This has included arranging alternative dispute resolution, such as mediation.
About 20 per cent of requests for assistance relate to contract disputes, while 9 per cent involve a franchise disagreement.
This often relates to contract renewals, breach of franchise agreement or early termination.
We can give small businesses the skills - and sometimes case management - to resolve a dispute without ending the business relationship.
In many cases they want to keep doing business but need to find a way through the dispute.
We can't guarantee every small business will succeed but it is our mission to provide all the help we can for those who want to start, grow or transform a business, and that no business fails because the owners didn't know about something that might have helped.
Small and family businesses can find more information and how to get help on the ASBFEO website - asbfeo.gov.au - where they can also subscribe to our monthly newsletter.
*The names of business owners have been changed.
