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The Recovery of SMEs is Being Hampered by Late Paying Customers

The Recovery of SMEs is Being Hampered by Late Paying Customers


Small to medium enterprises (SME’s) make up 99% of Australian businesses by number. They employ two-thirds of the workforce and produce over half of our economy’s goods and services. The importance of SME’s can not be understated, yet a lot of the time they get the short end of the stick. While the last few months have hit the entire economy hard, signs of recovery are emerging. Nonetheless, small businesses still have many issues affecting their ability to return to their former glory.

NAB’s ‘Supporting Economic Recovery’ study was released last week, highlighting a significant problem in the flow of payments between businesses. Late-paying customers have always been a problem for SME’s, however recent events have exacerbated the issue. Many large firms are using their bargaining power to delay payments to small businesses while they face growing pressure on their supply chain as well as declines in demand for their products and services. Whether this is justified or not, the result is $115 billion in late payments to small businesses every year – denying SME’s more than $7 billion in working capital annually.

Cashflow stress is rising due to late payments

SME’s are increasingly stressed about late payments and therefore, their cash flow. NAB’s research found that 53% of their invoices are not being paid on time. It isn’t easy to make financial decisions when the majority of your expected incoming cash flow isn’t received when expected. The Government has implemented the Payments Time Reporting Bill earlier this year to combat the issue, requiring larger firms to report their payment activity to small business suppliers. While this is definitely a step in the right direction, the reality is that SMEs are struggling significantly more than they were six months ago. Concerns around cash flow rose by 12% over this period, with almost half of the 1000 respondents to MYOB’s latest Business Monitor reporting that they feel financially stressed.

While there is no golden bullet for this problem, there are two recommended solutions to improve the situation for SME’s:

  • Use electronic invoicing (e-invoicing) to efficiently communicate invoices and receive payments from your customers. E-invoicing is a system that allows you to automate the exchange of invoices between your customer’s accounting system and your own. This makes it easier for your business to be paid on time as reminders are sent, payments are made online, and messy physical paperwork is eliminated, taking manual errors with it.
  • Consider invoice finance as a tool to unlock cash from your unpaid invoices. Invoice finance providers will pay you up to 90% of your verified outstanding invoice value upfront, charging a small fee to do so. Your business can use this cash to pay your bills, hire new staff, secure new suppliers or invest in growth opportunities instead of waiting at the mercy of your customer’s payment timeline.

Business funding is an additional challenge for SME’s

While late payments play a significant role in the financial issues faced by SME’s, they are not the only problem. NAB also found that at least 20% of small businesses in Australia have trouble accessing the finance they need to grow their business – with a third reporting access to funding as their most significant business challenge. This is due to SME’s lacking the same financial history, asset collateral and range of funding options as their larger corporate counterparts.

Fortunately, the SME Loan Guarantee Scheme provides an alternative for SME’s, making it easier for them to get a loan from an approved lender. As part of the scheme, the Government will guarantee half of the eligible business loans up to $250,000 until the 30th of September. These loans also feature a six month repayment holiday – providing your business with a significant cash flow buffer while times remain challenging.

Where do future opportunities lie?

There are many opportunities for agile, smaller businesses to take advantage of in the new, post-COVID economy. Pleasingly, research from Dynata has revealed that Australians are more likely than any other country to support small businesses, with three in five saying that they now prefer small business. A similar number reported that they felt obliged to help smaller companies survive, rather than their larger competitors. With consumers on the side of SME’s, it’s essential to plan your investments into areas that best reach them.

“E-commerce channels and digital capabilities have become essential.”

Other research from MYOB has indicated that the outlook for marketing spend has declined and shifted towards customer retention efforts. Consumer behaviour has also consistently moved online, with the last few months accelerating that trend substantially. Online retail, e-commerce channels and adaptable product offerings have become essential for the survival of the modern business.

Need further assistance or advice? Get in touch

Whether you’re looking to sure-up your cash flow, take your business to the next level or improve your business’ digital offerings, an experienced finance broker is your best point of call to discuss the financing options available for your situation. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small to medium business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.