​Late payments still letting small businesses down: PayPal

With Australian businesses waiting 26.4 days on average for an invoice to be paid, PayPal Australia is hoping to reduce this wait time and the ripple effect late payment causes.

One of the biggest problems facing small businesses in Australia and New Zealand is how long it takes to receive payments, Brian McDonnell, director of channel partnerships & marketplace at PayPal Australia, has said.

According to McDonnell, Australian businesses take on average 26.4 days to pay invoices, compared with the Japanese who pay 6.5 days in advance, and the Irish who pay on time.

"It creates a ripple effect; I'm waiting on the cash from a payment so I can pay you and it's this constant ongoing problem," he said.

Speaking to ZDNet at Xercon South, McDonnell shared one example of a small business owner with invoices outstanding from a client for 742 days.

"One day he decided it was enough and he decided to post something to this effect on his social media accounts: 'To all my customers, I know you need help from me today and I know I should be there for you, but I can't because I'm camped outside of this business that owes me outstanding funds and I'm going to stay camped outside of this business until I get paid'," McDonnell explained.

"He got paid. They made a lump sum payment that afternoon and then set a schedule to pay the balance."

While just over two years is an extreme case, the principle is the same for many small business owners in Australia, McDonnell said. He also said that was the very basis on which PayPal chose to work with New Zealand-based cloud accounting firm Xero.

McDonnell said he often hears people having to use credit cards, draw down on a mortgage, or borrow money off family in order to fund cash flow in a small business.

"When we sat down with Xero, we said: 'Okay you've got this platform about managing businesses and making businesses more efficient, and we have this global payments technology -- let's bringing the two together'," he said.

As a result, McDonnell said the time from invoice to paid has reduced significantly.

"In situations where you have invoices outstanding for days, months, even years, it's the difference between having to let a staff member go or keep them on. It has a ripple effect through the economy," he said.

"With Xero we believe we're on the path to solving that problem. It's a cash pump and I call the cash pump the heart of the business."

In the six months to July 2016, PayPal had processed $140 million worth of transactions worldwide with its Xero integration.

In August, Xero added a PayPal Express Checkout option to its software, allowing for an invoice created via Xero to be paid through PayPal directly from the invoice. The extension of the PayPal partnership also allows Xero users to be able to track the status of outstanding invoices and receive real-time status updates when those invoices are paid.

"If you look at what we do within PayPal, we look for software platforms that are new, large, small, startup, whatever the size, where they are solving a problem for businesses and creating a value proposition to help businesses manage their business," McDonnell said.

"This is innovation, this is the knowledge economy."

Disclaimer: Asha McLean travelled to Xerocon South as a guest of Xero.