Struggling businesses are taking almost three times as long to pay their bills as they did in 2019, putting healthier firms at greater risk of collapse.

The problem arose from changes to insolvency rules that gave faltering companies greater flexibility to delay making payments.

Designed to keep businesses afloat during coronavirus lockdowns, the changes have provided a crucial lifeline to otherwise strong companies going through a temporary rough patch.

But they are also helping companies with no future and choking our economic recovery.

Research from CreditorWatch shows national payment times blew out by a full day in August, rising 2.4 per cent over the month to an average of 43 days. 

The extension means businesses are now waiting 2.9 times longer for payments than they were in 2019.

CreditorWatch chief economist Harley Dale said the “stubbornly high” payment times show small businesses are struggling to generate cash flow outside of the support they receive from government.

“There’s a mountain of trouble behind the curtain of stability,” he said.

“It sounds harsh, but these businesses need to be allowed to fail so that government focus can be aimed at companies that can stand on their own two feet.”

The numbers come amid growing calls for federal government to begin weaning so-called ‘zombie businesses’ off stimulus payments before insolvency laws return to normal on December 31.

The ‘zombie’ tag is used to describe businesses that have little chance of survival when government stimulus is wound back. 

These firms are problematic as they will continue to receive taxpayer money and can run up further debt despite having no sustainable future.

‘Cycle of weakness’

The blowout in payment times places otherwise healthy businesses under additional strain, CreditorWatch CEO Patrick Coghlan said.

“Cash flow is the backbone of nearly every small business, so prolonged payment times could spell trouble for millions of working people,” he said.

“Without the certainty of being paid by debtors, companies are unable to make investments in people, equipment or the facilities that would otherwise fuel their growth, or survival.”

Independent economist Stephen Koukoulas said the blowout in payment times was hurting Australia’s recovery.

As weaker businesses push out their payment times, otherwise stronger businesses are forced to wait longer for the money they use to pay their own bills.

This means they too are forced to push out their payment times in order to stay afloat, Mr Koukoulas said.

“You get this cycle of weakness coming through,” he said.

“It risks the recovery if this is allowed to continue for much longer.”

Insolvency rules a double-edged sword

Australian Small Business and Family Enterprise Ombudsman Kate Carnell said delayed payments are hurting many smaller businesses.

But the changes to insolvency laws that are allowing payment blowouts are also “absolutely essential” in securing a future for still-viable businesses.

“All these rules are really important, but they’re having this unintended consequence,” she said.

Ms Carnell said state governments should give struggling business owners advice vouchers worth $5000 to access personalised insolvency advice from an accredited financial adviser.

“We need to change the laws to make it simple, inexpensive and quick to liquidate your business,” she added.

“Because the quicker you do it, the more money you have to pay your staff and your creditors.”