Payday Super Is Here: What It Means for Your Cash Flow

Presenter: Raj Kuckreja, COO & Co-founder, ezyCollect by Sidetrade | Chartered Accountant

Introduction

Good morning, everybody. My name is Raj Kuckreja. I'm one of the co-founders of ezyCollect. I'm the Chief Operating Officer. I'm also a Chartered Accountant and run an accounting practice on top of all that.

I'm here today to talk about Payday Super and give everyone an overview to make sure everybody's ready for it. It's only a couple of weeks away, and I want to give you a feel for what it means for your cash flow.

I'm looking at it from a unique perspective. I think there are lots of Payday Super webinars which you've probably attended, or you have a bit of an idea of what it's about. But I'm looking at it in particular from a cash flow perspective and what it means for B2B businesses — B2C as well, but B2B is where the focus is today.

Some house rules: this will be recorded, and you will be sent a copy of the recording after the webinar. The other house rule is please ask questions along the way. I much prefer to interact as we go, as opposed to saving everything for the very end. You can pose those questions in the Q&A on the web page.

Today's agenda:

What's changing
What it means for cash flow
What you can do to help manage it, with a B2B lens in particular
Questions

It's a short webinar, but it's meant to give you a high-level overview and make sure everyone's ready for what's coming in a couple of weeks.

Audience Poll

Before we go any further, I want to post a quick poll to get a feel for what worries you most — what are your concerns around Payday Super and why you're here?

You should see a poll there. Give everyone 30 seconds to respond. Which part of Payday Super concerns you most?

Really interesting. I didn't expect that. It's a pretty even split between funding every pay run and slower customer payments. Compliance seems to be the biggest issue on everyone's minds, along with additional administration. And there's always "all of the above."

What's Actually Changing

Let's take a step back. What's actually changing, and why?

It's all about timing — not cost, not anything else. Just timing. When is your super being paid?

For the last 35-plus years, superannuation has been paid quarterly — four times a year. Businesses, in particular small businesses, held on to that cash, used it to fund working capital, and then paid it 28 days after the end of the quarter. So if an employee got paid on the 1st of July, the super came in on the payslip but wasn't paid out until the 28th of October. That was a significant cash buffer.

One of the reasons this is changing is that smaller businesses in particular would sometimes get to a point where the super wasn't paid — sometimes never paid — or it was just the one lever you could pull when things got tough. You wouldn't pay your super. Yes, there were penalties. Yes, there were compliance risks. But the ATO and government authorities really struggled to manage that compliance risk.

So, 30-plus years we've had consistency: four times a year you pay superannuation. What's changing on 1 July is that, with all new systems and processes in place, there's a confidence that superannuation can be easily paid on every pay run.

From 1 July, whatever day you run payroll, on the same day you need to push out the superannuation for your employees. It has seven days to reach the fund. That window is to allow for superannuation clearing houses — a clearing house is a middle organisation that collects your cash for, let's call it, 30 employees and pays it to their respective super funds.

So from the day of the pay run to the day it hits the employee's super fund, there are seven days. But effectively, you need to push the super out on the same day as your pay run.

The biggest thing that's changing is frequency. There are some ongoing implications to how superannuation is calculated, but they're all on the peripheries. In 99.9% of cases, it doesn't affect most businesses. The biggest implication is when the superannuation leaves your bank account.

What Payday Super Means for Your Business

1. Operational Change

It's a systems change. Does your payroll system allow for superannuation to be pushed out on pay day? Have you got a superannuation clearing house, or are you paying directly to a super fund? And there's a lot more discipline required around your cash flow to make sure you've got the cash when you pay not just your wages, but also your superannuation.

I would say it's a good idea — and a lot of businesses are doing this — to test the process beforehand. From today onwards, on any pay run, start paying the super straight away. It's good practice.

2. Increased Compliance and Visibility

Remember, all of this is adding more data, more data points, and more ability for compliance and visibility. As most of you probably know, as soon as you post your pay run or send payroll information, you send that to the ATO. The amount of data the ATO will receive on each pay run — in particular in relation to superannuation — will increase on 1 July. The super funds will be sending data to the ATO to cross-match and make sure the money is hitting.

I don't expect — and the ATO has stated they don't expect — a huge amount of compliance action in the first three to six to nine months. They just want to make sure things are being done properly.

But I think what most people are missing in terms of compliance is that this now creates very clear understanding from employees to keep an eye on their super. It's not like, "Oh, it doesn't really matter. I don't get this money for 10 or 11 weeks, and then I can try to audit it and work it out — but I never really will." Now, on every pay run, I expect that in a few months super funds will start sending notifications saying, "Hey, you just received this much super." It keeps people vested in their superannuation. That's one of the reasons the government has changed these rules.

To address the concern in the poll about compliance: I think the main thing is you need to have action in the next few weeks. You need to start trying to comply with the rules. I don't expect a huge amount of compliance action early on, but obviously if you're flagrantly not complying, there's an issue.

The ability to catch up later is gone. It's not like, "Hey, I don't have the cash this week, I'll pay it next week," or, "I'll miss this quarter and catch up later." That's sort of disappearing. Based on the data available, they'll know pretty much straight away.

I would say this is a massive hit on a lot of smaller businesses in particular — your small restaurants and cafés, your tradies, your construction businesses. It's a big cash flow hit.

3. Penalties and Enforcement Risk

There are the same sorts of administration fees and interest fees. There's a slightly new take on what is tax deductible, but that's probably a deeper conversation.

I would also go so far as to say that the ATO does have the ability to make a director personally liable for superannuation. That may be something they look at doing increasingly for businesses that aren't paying on time, and that just adds a lot of pressure to small businesses at this point in time.

4. Cash Flow Impact

How much cash is actually going to leave your account, and how much earlier?

If we look at this meaningfully: in July, you need to pay super on each pay run. So if your total super bill is $10,000 a month, you need to pay that $10,000 plus all the super for April, May, and June. In the month of July, there's going to be a big cash flow hit on your business — and on your customers' businesses as well.

It's a double impact on cash flow. I think that's one of the things that, up to now, hasn't been in the discussion. It's starting to become a lot more relevant.

I know the email advertising I'm getting is very targeted on loans — which I wouldn't recommend — high-interest loans to help fund this gap in cash flow. "Hey, you don't have the money to pay your super? Here's a loan at 20–30% interest." That's what's being advertised right now. It's a little bit worrying.

From your own business, it's just about remodelling. Most cash flow models have the ability to say, "Okay, payroll super is paid 28 days after the end of the quarter. We have this extra cash in the meantime." That's gone. The month of July is a double hit. You need to be ready for that because it will come quickly, and you need to be ready that your clients are going to struggle with this too.

Broader Economic Implications

I used AI to estimate what this means for the general economy, looking very specifically at smaller businesses with under 20 employees.

I'm not saying this won't impact medium and large businesses. A lot of larger businesses already pay super in this manner. Medium businesses are impacted, but they have more levers to pull on cash flow. With small businesses under 20 employees, there are a lot fewer levers.

Key figures:

~$5 billion of working capital pulled forward, based on six weeks of forward contributions. Normally we pay super at the end of 12 weeks (end of the quarter). Bring it back by half, and that's about $5 billion leaving the economy — well, going into investment pools to be invested in superannuation a lot faster than it otherwise would be.
That's $5 billion less that small businesses have to pay bills, pay the ATO, pay everyone else.
That's about 10% of a typical month's cash flow. If you're running on thin margins, 10% can be quite a large hit.
It's one and a half weeks of cash flow buffer that disappears overnight.

Most small businesses are on weekly or fortnightly payrolls. After week one — let's say 5 July is your first payroll — and then week two, you've suddenly lost 10% of your monthly working capital. Then you've still got to pay the April to June super.

I'm not trying to be a Debbie Downer on all of this, but I just think everyone needs to be really prepared for the cash flow hit that's coming.

Keep in mind this is on top of all the other things affecting small businesses on 1 July or in the next quarter: the end of surcharging relief for hospitality and retail businesses (which impacts on 1 October for credit card surcharging), the fuel excise relief ending around that time as well, a lot of budget changes, a slow economy, and salary increases kicking in for minimum and award employees on 1 July. There's a big hit with all these things layering on top of each other.

On top of it all, there has been talk that they may delay Payday Super. I can't see it happening.

Overall, if I was to say whether this is a good or bad thing — it's probably a good thing for employees. It's just that the timing is really difficult and it's hard for small businesses. It creates more interaction for employees with their super funds, which has to be a good thing.

The Cash Flow Squeeze: What This Means for Your Customers

Cash that was available for operations now leaves on each pay cycle. It's the same obligation, just more payment events. Instead of paying once a quarter, every week or every fortnight you need to pay the superannuation — it needs to leave your cash account, take up to seven days to travel to the super fund (hopefully two or three days), and hit the employee's super fund. Seven is the maximum allowed.

What does it mean for your customers? Keeping in mind we have the lens of a B2B business here:

They have a lot less cash flow — let's call it 10% less cash to work with.
They will deprioritise paying invoices. They will delay. Instead of delaying super (which they now can't), they have to delay something else, because the cash isn't there — unless it's sitting in a bank account.
They'll stretch, they'll push, they'll dispute, they'll do what they can to delay. It's not a bad thing. It's just businesses trying to manage their day-to-day cash flow needs — loan payments, repayments, wages, salaries, all those different demands.
They will stretch their terms and ask for longer terms. Your invoice will move down the queue. If something goes to the top of the queue, something else has to come down.
You'll find a lot more requests for payment plans. That's my view on it.

This is the thing everyone's missed: all these small businesses now have to put super at the top of the list. We know how tough it is right now. Everything else will fall down, including your invoices, including requests for payment plans.

Overall, the same amount of money is leaving their bank account, but it's a lot faster and it's a double hit in the first quarter. Until this becomes just part and parcel of business — which will take about a year to flow through — for the next three to six months in particular, it's going to be extra tough.

It is, in some ways, a domino effect. While this is affecting your customers, it's also affecting your business. You have pressure to pay your superannuation sooner. Your customers have the same pressure. They pay you slower. You've got less cash to pay your bills. And that just filters through the economy. One person slows down their payments, the next one does, and the next one does. It inherently leads to a slowing economy. Money in slows down; money out speeds up. It's a problem that needs to be solved.

The Accounts Receivable Response

One of the ways to solve this is through your accounts receivable strategy. How do you collect money faster?

That doesn't mean you ignore the rest of your cash flow cycle — look at which suppliers you can pay later, which outgoing cash flows you can manage better. But a key question is: how do you collect your money as fast as possible?

Your customers are going to be paying you slower. What are your strategies to stay ahead of the cash crunch coming?

Strategy 1: Stay Relentless

Stay at the top of your customers' list. Whether it's accounts receivable follow-ups, customer calls, or getting your team out there to meet them — because people like interaction, like to feel understood, feel that empathy — that means going out and talking to more people.

If that's not possible in your business model, it's phone calls and emails. I would emphasise phone calls right now, because people want to, in some ways, just talk about how tough things are. You've got to understand that and go from there. By making that call, you stay on top of the list.

If you're using ezyCollect, I would adjust your customer communication cadence — more calls, faster calls, and more interactions as much as you can.

Strategy 2: Monitor Your Customers More Frequently

When I say monitor, I mean: look at your credit scores, look at the late payment risk — all those types of things. Super important.

But also just look at the data. If a customer has always paid you on time, paid you quickly, and they start slowing down, it requires action. You need to take a more intuitive view and look at the data all the time. We have a lot of that at ezyCollect, but it's worth that extra look.

Strategy 3: Lock In Cash with Direct Debit Authorities

A direct debit authority is the ability to debit directly from a customer's bank account or credit card for an invoice payment, or potentially a prepayment. It's the ability to take money from their bank account.

By getting that authority, as soon as the goods are dispatched or the invoice is due, you have the ability to take that money out of the bank account. Now, it assumes they have the cash in the bank account — I agree. But it's a way of, to some extent, making sure you are on top of the list. If the cash is there in the account, you are able to debit it.

What I can see happening come 1 July is that a lot more direct debit authorities will fail. It's just a matter of: if you've taken 100 authorities and your normal failure rate is 1%, and that goes to 2 or 3%, you've got a couple more follow-ups and emails. But it gives you an early indicator. Maybe you should stop supplying a particular customer, or slow it down, or request that they prepay in advance before you release more goods to them.

Watching that data is pretty critical. There are always good stories — I remember hearing one about a large camera retailer before Dick Smith went broke. They had to go to court because it was alleged they got a preferential payment. The receivables officer said, "Look, we didn't get any preferential payment. We saw the data. They were paying a lot slower. We knew there was a problem. We refused to release goods to them unless they paid us in advance." It wasn't preferential. It was just intelligent planning.

That's what I'm saying: the more you can monitor and pick up issues before a company goes broke, the less you could potentially lose.

Strategy 4: Predict and Plan

A lot more cash flow monitoring is needed. I know a CFO who is big on daily cash numbers — wants to know the daily bank position each day and what that looks like on a forward basis.

A lot of businesses work off weekly or monthly cash flows, but I think the more prediction you can build into your modelling — planning for potentially higher bad debts as a worst-case scenario and understanding what that means — the better positioned you'll be. You can't manage what you don't measure.

Potentially measure bad debts as a real, active thing. Say, "Okay, we expect half a percent of bad debts, which equals $50,000." Then incentivise people to make sure it's not $50,000 — it's $5,000, preferably.

That may lead you to look at things like trade credit insurance, which is one option, or PPSR registrations on your customers.

Strategy 5: Incentives and Consequences

The carrot or the stick. How do you incentivise people to pay you at the top of the list?

Early payment discounts — something we've got built into our software at ezyCollect. Payment policies to encourage people: 1%, 2%, 3% discount if you pay early or pay on time. It means you go to the top of the list, because suddenly a customer gets a bit more benefit paying your business faster.

I always like the carrot. The other side is the stick: "If I don't pay this on time, I'm going to get penalties, administration fees. I will lose access to these goods." What is the stick? Is it that you won't supply them anymore? Is it an interest charge?

This needs to be managed within each business and according to the relationship with that customer. Both can be implemented using manual processes or automated solutions like ezyCollect.

I think it's really time now, more than ever, to at least look at how you implement some of these things with what's coming on 1 July.

The Silver Lining

Keep in mind, Payday Super will reward businesses with stronger cash flow discipline — people who are really careful with their cash flow. If you have predictable collections and are proactive about your receivables management, you'll benefit.

It will also reward employees who are now really clear about where they are with their super each week or each fortnight. And it will lead to an extra boost of investment cash in super funds to be deployed.

Three Things to Do in the Next Three Weeks

1. Test Your Payroll Systems

On your next pay run, just make sure this works. I've seen people who thought everything was set up — they were using MYOB as their accounting software, but unfortunately their bank had put a cancellation on payments coming out of their bank account. So it just kept failing. MYOB kept trying to take the money out and pay it to the super clearing house, and it constantly failed. Luckily, they had tested it. They had to resolve it with the bank after a three-hour phone call, but they got there.

Another client had a particular process for doing their payroll and superannuation payments. It was a little bit manual, but they had an admin person handling it. They suddenly realised it wouldn't work under Payday Super, so they needed to implement a new payroll system — which they've done.

Just a quick test. Make sure it all works. Run it end to end, and there's nothing to worry about.

2. Stress Test Your Cash Flow

Get a feel for what this means for your cash flow, because it's different for every business — whether you're on a weekly, fortnightly, or monthly super cycle.

In particular, stress test the July cash flow, where you have the double hit of super. Make sure there's enough cash there. Think about how that plays into what you're predicting in your cash flow models for customer receipts. Do you expect collections to slow down? If yes, how much? What's the impact? Do you have enough to pay your own super obligations? Do you need to manage that differently — take a loan, use other working capital levers?

A quick stress test is super useful. Most businesses are doing budgeting for the next financial year at the moment anyway, so it's a good time to do it.

3. Tighten Your AR

Look at every single policy or process you can to tighten your accounts receivable. What can you do to collect faster and secure your cash? Whether it's incentives, monitoring, phone calls, more customer interactions — any of those work in a meaningful way.

If you'd like to see how ezyCollect can help in this process, there's a link to book a demo. We can give you a demonstration of how we can help you put the carrot-and-stick approach in place — what incentives you can implement, direct debit authorities, or just that discipline of tight, continuous follow-ups.

Q&A

Q: What happens if we miss a super payment under the new rules? Is it the same SG charge process as today, or are penalties getting stricter? How much wiggle room do we have if something goes wrong in the first few months?

In the first few months, I think the ATO is going to be very lenient — as in, you made an effort to pay on time and it didn't go through. They're going to learn what the data says and work through it. You still have the obligation to pay interest, administration fees, and the superannuation after that seven-day period.

One positive: the actual superannuation payment is now tax deductible. It wasn't before. So in some ways, the penalties are slightly less, arguably. But the ability to find the issue is much faster from the ATO's side.

It's not exactly the same super guarantee charge process, but it's not totally dissimilar. The hard part now is that it's on each pay run instead of at the end of the quarter. So there's a lot more admin — on every pay run where you miss super, you need to complete an SG charge statement, add all the extra costs, and pay it.

How much wiggle room? First few months, not an issue. After that, because of the data sharing that's available, your wiggle room is limited. Compliance is very easy for the ATO, and issues are found a lot faster. It's simple data matching.

Q: Is the April to June super still due on the 21st of July?

Yes, it is. It's technically due on the 28th of July, but most of the time you pay on the 21st because then you have seven days for the clearing house to process. Nothing changes for the April to June super.

However, what will change is that if you have a pay run in the first week of July, you still need to pay the July super on that pay run. Then come the 21st of July, you also need to pay your April to June super. That's the biggest cash flow hit.

Closing

Thanks, everybody, for your time. Really appreciate it. Have a good day, and do reach out to ezyCollect if there are any follow-up questions. Thank you.