Small businesses hit by payment terms

Small businesses are facing cash flow pressure as large customers extend payment terms then seek a discount for early settlement, says the industry body for receivables finance providers.

Yet small businesses can access bridging finance through factoring or discounting to relieve their cash flow pressure and give them greater control over their finances, the Institute for Factors and Discounters says.

Large companies have extended the time between receiving goods or services and making payments to as much as 60 days, the institute said in a statement on Wednesday.

This puts pressure on the cash flow of supplying small businesses, which in turn can prompt them to accept discount payments of up to five per cent for early settlement.

"Certain sectors at the big end of town are turning the screws on their suppliers," chairman of the institute Brendan Green said in the statement.

"They are delaying their payment and in many instances have extended their standard payment terms to 60 days from delivery or from the end of month in which the goods were delivered.

"The cash flow pressure this has placed on some suppliers has paved the way for creditors to introduce early settlement discounts."

Mr Green said small businesses could access credit borrowed against their debtor's ledger to so they don't have to agree to lower payments.

"This is much like having an overdraft secured against your debtors," he said.

The line of credit could be worth up to 90 per cent of their receivables, Mr Green said.

Money borrowed against the money small businesses are owed could also be used to bulk-buy the inputs they need, which can also save them money, Mr Green said.