Why Australian Small Businesses Are Struggling With Cash Flow

When it comes to health checks for business, one of the indicators to look at is cash flow. Xero Small Business Insights data from 2025 suggested that less than half of Australian small businesses were cash flow positive in any given month, highlighting common cash flow pressure.

More recent data shows that average payment times have improved to around 23.9 days — a record low — but the gap between when invoices are due and when they are actually paid continues to put pressure on cash flow.

As of 2025, small businesses still make up over 97% of all Australian businesses, according to the Australian Small Business and Family Enterprise Ombudsman, making them a solid part of the Australian economy. So what’s causing so many of these businesses to struggle with their cash flow?

The Reasons Why Australian Small Businesses Are Struggling With Cash Flow

While cash flow issues stem from a variety of causes, three main areas generally appear across the board. Understanding these problems and learning how to address them can help small businesses maintain healthy cash flow. 

1. Late payments 

Recent data shows that average payment times have improved to around 23.9 days — the fastest on record — according to Xero Small Business Insights.

Large companies may barely notice this period of time; however, it has a much larger effect on their smaller counterparts. In fact, it’s often the bigger businesses that are causing the late payment issues for SMBs, with many still paying beyond agreed terms despite improvements in overall payment times.

There have been efforts to improve this. The Payment Times Reporting Scheme now requires large businesses with over $100 million in annual income to publicly report how quickly they pay small suppliers.

In addition, the introduction of the “Fast Small Business Payer” and “Slow Small Business Payer” lists in 2024–25 aims to increase transparency and accountability across industries.

However, despite these changes, late payments remain a day-to-day issue for many small businesses, particularly when payment terms are extended or inconsistently applied.

2. Poor financial management

From overspending to not having a budget, small businesses suffer when their finances aren’t managed properly. Making purchases without being aware of finances hurts cash flow and is felt quickly. This now also includes failing to adjust for persistent inflation and higher interest rates, which continue to put pressure on business costs.

Many small businesses don’t spend enough time keeping track of their spending. Sometimes, this is because they’re not using the right software, including modern tools like AI-driven cash flow forecasting available in platforms such as Xero and MYOB, making it difficult to analyse what’s happening and to create a budget. e-Invoicing (via the Peppol network) is also becoming more common, helping reduce manual errors and speed up the payment cycle.

As a small business owner, it’s easy to take control of this and improve the company’s cash flow. Whether the small business analyses the incomings and outgoings itself or brings in the right accountants to help, it’s possible to turn the financial management around. Dedicating a little bit of time regularly will help small businesses to stay on top of the company’s finances.

3. Being out of touch with your small business

Each small business will have its own personal quirks and oddities, and being unaware of them can impact a company’s cash flow.

For example, if a business goes through a seasonal cycle, this should change how stock is purchased and what marketing is invested in, going into a slow period. Holding stock for a long period hurts cash flow, as the money from the output won’t get a quick return, tying up funds.

If small business owners don’t know their company, they may not realise if they’re running their company on a negative cash flow business model either. Knowing this could allow them to change their model or, if that’s not possible, manage it more efficiently.

Regular reports, forecasts, and cash flow statements help small businesses to get a feel for the ins and outs of their company and support them in making better decisions.

If you’d like to know more about cash flow and how to improve yours, reach out to us at Wilson Porter. With years of experience helping small businesses behind us, we can help you get the results you want.