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Avoiding New Year cash flow challenges for SMEs

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Greg Charlwood 8 minute read

As we advance into 2018, cash flow remains one of the top headaches for small businesses. Greg Charlwood, managing director of Australian Invoice Finance, gives SMEs some advice on how to avoid a cash flow crunch in the coming months.

It is a tough world for Australia’s small and medium-sized enterprises (SMEs). The current operating environment is extremely competitive and cutthroat. Only a small fraction of start-ups survive their first two years. For those that do, there is the constant threat of disruption by new technology or competitors like Amazon, employee and union pressure to increase wages and customer pressure to reduce prices.

According to the latest research carried out by illion (formerly Dun & Bradstreet), only 66.9 per cent of Australian businesses are paid on time. During the September quarter of 2017, the average late payment time was 12.6 days, down by a day on the previous quarter, but still a significant problem for SMEs with wages and other bills to pay.

Australian Capital Territory businesses had the longest average late payment period at 15.3 days, compared with 14.1 days in Western Australia and 13.1 per cent in New South Wales. Within industries, mining had the longest average late payment period of 17.9 days, followed by utilities at 16.3 days and manufacturing at 16.2 days.

Against this backdrop, it is not surprising that small business owners are looking at ways to reduce their cash flow challenges. Here are some of the mechanisms you can use to reduce cash flow headaches.


Do your credit checks

Surprisingly, only a relatively small percentage of small businesses do credit checks on new customers. Given the increasing challenges of managing cash flow, this is an area for improvement. As a small business owner, it is more important than ever to assess the credit risks associated with selling to a new customer before you close the sale. Financial prudence is fundamental to business survival in the current climate.

More focus on cash flow forecasting

A cash flow forecast can help make sure that you have cash available throughout the year or give you advance warning of a shortfall — which can help you negotiate an additional facility with a bank, or alternative source of funding, from a position of strength. It is important to be realistic and brutally honest with your assumptions.

Check out alternative sources of funding

Many business owners look beyond traditional sources of funding, with a significant proportion likely to seek credit from sources other than banks in the next 12 months. It is an ongoing gripe of small businesses that the security requirements for bank loans and overdrafts are excessive. Consider invoice financing as an alternative. 

The company’s research noted: “By providing companies with upfront cash against receivables, invoice financing or factoring is a simple and effective service to smooth out cash flow troughs. The biggest benefits are fast approval and access to funds, lending up to 85 per cent of the value of invoices, and the fact that property isn’t required as security.

“Interestingly, our global research shows that SMEs in other parts of the world, including Europe, are equally frustrated and invoice financing has been one of the fastest growing financial products for businesses worldwide in recent years.”

Avoiding New Year cash flow challenges for SMEs
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Greg Charlwood

Greg Charlwood

Greg has been in the invoice financing industry for more than 30 years and is very knowledgeable about the challenges small businesses face. Greg founded and was head of two of Australia’s major invoice finance businesses. For nearly 10 years he was on the international board of Bibby Financial Services and was CEO of the group’s Asian and Australasian businesses. Greg has twice been chairman of the Debtor and Invoice Finance Association of Australia and New Zealand and is a past director of the Turnaround Management Association of Australia.

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