Login
ISCOVER
The cash flows of small and medium-sized businesses have improved despite lingering pockets of stress across the sector, according to new data from the major lender.
The share of small and medium-sized enterprises (SMEs) experiencing improving cash flows has increased for the second consecutive quarter, according to new Westpac data.
Released on Friday (23 May), the Westpac Quarterly Business Snapshot Q1 2025 (for the three months to 31 March 2025), showed tentative signs of improving cash flows across sectors, with the lender’s Business Cashflow Gauge edging 0.4 per cent higher.
Westpac’s report, leveraging proprietary data of 570,000 businesses and millions of daily transactions, also showed cash flow improvement for a growing number of SMEs, despite pockets of stress.
The number of SMEs – defined by Westpac as businesses with less than $5 million cash flow – that had improving cash flow increased by 1.3 per cent. This followed a 0.6 per cent growth in the fourth quarter of 2024.
While the quarterly increase in SME deposits was “modest” at 0.3 per cent, Westpac said it was 7 per cent higher than the 2023 low.
However, “pockets of stress” in the sector remained, with Westpac saying SMEs in general had less scope to pass on costs to customers.
Sian Fenner, Westpac’s head of Australian business and industry economics, said the data pointed to signs of stabilisation in SME cash flow.
“Balance sheets across SME and commercial business remain strong, although there are nuances,” Fenner said.
“SMEs have shown a preference for rebuilding cash balances and borrowing to facilitate the smooth daily running of their business.
“In comparison, even though commercial businesses have built up significant liquidity, they continue to invest, with equipment and financing growing at more than triple the rate of growth in working capital.”
Meanwhile, Shane Howell, Westpac’s general manager, commercial banking, also acknowledged the green shoots amid signs of caution.
“We’re seeing a continuing trend where businesses in the middle market are performing strongly,” Howell said.
“They’re focusing on capacity expansion and long-term growth and it’s encouraging to see them investing for the future.
“We know there are businesses still doing it tough who aren’t out of the woods yet, particularly at the smaller end of the market and we want them to know we are here to help.”
Ongoing challenges
The latest data comes off the back of what has continued to be a challenging period for Australia’s SMEs, which continued to navigate interest rate pressures and the inflationary environment.
In a recent appearance on The Adviser’s In Focus podcast, Guy Callaghan, CEO of small business lender Banjo Loans, said SMEs were increasingly looking for solutions beyond pure price increases.
“The one thing we know is that [SMEs] are such a resilient lot,” Callaghan said.
“They’re really positive, and they look for ways in which they can not only survive but grow, prosper, and drive their business to the next level.
“For all that we’ve seen and all the hard work [SMEs] have had to go through, they still [see the world as] a glass three quarters full – which is awesome for the economy.”
Listen to the In Focus episode with Guy Callaghan or read The Adviser’s feature on cash flow finance in the May magazine.
[Related: More than half of SMEs plan to borrow in the next year]
JOIN THE DISCUSSION