Late Payments and Small Business Borrowing Research Note

This research note examines the relationship between late payments and small business borrowing, utilizing data from the Xero Small Business Insights (XSBI) and the Bank for International Settlements (BIS). It highlights that late payments to small businesses are associated with increased borrowing, with empirical evidence showing that small businesses borrow an average of 1.1% more for each additional day of late payment. The analysis covers data from March 2017 to September 2022 across five countries: Australia, New Zealand, the United Kingdom, the United States, and Canada. The findings indicate that small businesses are generally paid over a week late on average, and this delay significantly impacts their borrowing needs. The research also discusses the non-linear relationship between late payments and borrowing, revealing that the most substantial increases in borrowing occur when invoices are paid 7-8 days late. Additionally, it outlines the methodology used for analysis, including linear regression models that control for various economic factors.