Key takeaways
- Rank fixes by damage, not by cost: The cheapest-looking options usually take something out of the business that earns you money, which is why they cost more than they appear.
- Delaying the ATO is now expensive: General interest charge compounds daily and, since 1 July 2025, is no longer deductible, so the real cost is higher than the headline rate.
- Look inside first: Cash already tied up in unpaid invoices or stock is usually the fastest source, and it does not add new debt to the balance sheet.
- Revolving beats lump sum for timing gaps: You pay interest only on what you draw, and the limit resets as revenue arrives.
- The decision: Identify what is causing the gap and how long it lasts, then choose the fix that leaves your capacity to trade untouched.
A short-term gap is rarely a sign that the business is failing. More often it means a large invoice landed before a large payment did. The danger is not the gap itself, it is what you do to close it. Most instinctive responses quietly take capacity out of the business, and you end up trading your way into a smaller month to survive a difficult week.
Why the obvious fixes cost more than they look
Letting the tax bill slide is the most common informal overdraft in Australia, and it has become a costly one. The Australian National Audit Office reported that small business collectable tax debt reached $35.9 billion in 2024-25, around two thirds of the $54.2 billion owed, after rising by $19.4 billion since 2018-19. That trajectory is why enforcement has tightened.
The pricing has changed too. The ATO applies general interest charge on overdue amounts at 11.43% a year for the July to September 2026 quarter, calculated daily and compounding. More significantly, the ATO confirms that any general interest charge incurred on or after 1 July 2025 is not deductible, regardless of which income year the debt relates to. Interest on a commercial facility used for business purposes generally remains deductible. That difference alone changes the ranking of your options.
Rank your options by what they take out of the business
| Option | What it really costs | Effect on operations |
|---|---|---|
| Stretch supplier payments | Goodwill, priority on stock, future terms | High: supply slows exactly when you need it |
| Let the ATO bill run late | Daily compounding interest that is not deductible | High: enforcement risk and director exposure |
| Cut stock, hours or marketing | Lost sales in the following month | High: shrinks the revenue that closes the gap |
| Release cash from unpaid invoices | A discount fee on invoices already earned | Low: nothing changes for customers or staff |
| Draw on a revolving facility | Interest on the drawn balance only | Low: trading capacity stays intact |
The pattern is consistent. The three options that feel free are the ones that reduce your ability to trade. The two that carry a visible price leave the operation alone.
Start with cash already inside the business
Before borrowing against future revenue, look at revenue you have already earned:
- Unpaid invoices: If you invoice other businesses on terms, that ledger is a funding source. Invoice finance releases up to 90% of an invoice value, often within 24 hours, and repays when your customer pays. Confidential facilities exist if you would rather customers not know.
- Stock sitting on the floor: Slow-turning inventory ties up cash you have already spent. Inventory finance advances against stock value without needing property as security.
- Collections you have not chased: A disciplined follow-up on overdue accounts frequently closes a gap on its own, and costs nothing but the phone call.
- Deposits and progress claims: Bringing forward a milestone claim, or asking for a deposit on new work, shifts the timing in your favour without any finance at all.
When a facility is the better answer
If the gap recurs, or the cause is a payroll cycle rather than a single invoice, a facility suits better than a one-off fix. Two questions decide the structure. Is the need ongoing or a single event? And can the lender see an asset behind it? An ongoing need suits a revolving limit you draw and repay repeatedly. A genuine one-off with a clear repayment source suits a short-term loan. Match the repayment period to when the money actually arrives, since a facility repaid faster than your customers pay simply recreates the gap.
A realistic scenario
A Brisbane joinery business invoices $180,000 a month to builders on 45-day terms. A large BAS payment and a fortnightly payroll fall in the same week, leaving it about $70,000 short. The owner considers a payment plan with the ATO.
On the numbers, that is the worse option. The interest compounds daily, it is not deductible, and the debt still sits there when the next BAS falls due. Instead the business draws against two invoices already issued to a reliable builder, receives the funds the next day, and clears the BAS on time. The fee is a deductible business expense, no supplier was asked to wait, and no job was delayed. When the builder pays, the facility clears itself. The gap was closed with money the business had already earned.
Frequently asked questions
Is an ATO payment plan ever the right choice?
It can be, particularly if you have no other access to funding and engage early rather than waiting for enforcement. What has changed is that it is no longer the cheap option it once was, because the interest compounds daily and is no longer deductible. Compare it against commercial funding rather than assuming it is the default.
How quickly can funds be arranged?
Some facilities are approved and funded within 24 hours, particularly where a lender can read your accounting data directly. Invoice-backed drawings are usually available the next business day once a facility is live. Establishing a first facility takes longer, which is the argument for arranging it before you need it.
Will using finance hurt my chances of borrowing later?
Used well, it usually helps. A business that pays suppliers and the ATO on time presents far better to a lender than one carrying tax debt and stretched creditors. What does damage an application is a pattern of missed obligations, which is exactly what a short-term facility prevents.
What matters most
Name the cause and the duration before you reach for a fix. If the gap traces to invoices or stock, release the cash already sitting there rather than borrowing against next month. If it recurs, put a revolving facility in place while trading is strong, not in the week you need it. Above all, resist the fixes that feel free. Stretching suppliers, deferring tax and cutting capacity all borrow from the same place: the operation that has to generate the money to close the gap.
This article is general information only and does not take your circumstances into account. Speak with your accountant or a licensed adviser before making a finance decision.
Facing a timing gap you would rather not solve by slowing the business down? Compare cash flow facilities across 50 or more lenders here.