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Faster payments matter: SMBs are missing out on 43% extra working capital 

ScotPac’s bi-annual SME Growth Index has revealed business owners are keeping a strong handle on their cash flow as uncertain economic conditions and border closures continue.

The report reveals there has also been a drop in cash flow issues, likely due to the impact of federal and state government support initiatives to help the small business recovery.

The 2021 first-half results of the SME Growth Index, found seven in ten businesses (72.5 per cent) were experiencing some cash flow issues. However, 27.5 per cent of businesses surveyed experienced no cash flow issues in the past 12 months.

Scot Pac CEO Jon Sutton suggested this was a positive result. In the 2018 and 2019 rounds of research, a much smaller figure of only 9.5 per cent to 10 per cent of small businesses reported having no cash flow issues.

Fast payment times would boost cash flow

If small businesses never had to wait for payment, they estimate they would hold an average 42.8 per cent in additional working capital.


“Fledgling businesses (five years or under) have on average 59 per cent of their working capital tied up in unpaid invoices, while for older businesses it is 36 per cent, said Sutton.

“This reinforces the importance of prompt payment for small businesses, and for business owners to look for funding solutions that can smooth out cash flow if they are having to wait for payment.”

What is causing cash flow headaches?

The ScotPac CEO said despite governments making an effort to ease the pressure on business owners “government red tape and compliance” was one of the main causes of cash flow issues reported by small businesses (reported by 44 per cent of respondents).

Sutton says it is not a new concern. This issue has consistently topped the list of small business cashflow concerns since the first SME Growth Index in 2014.

Other common causes of cash flow woes were trying to meet tax payments on time (24 per cent), being declined from a lending product (23 per cent), suppliers reducing payment terms (21 per cent), customers paying late (20 per cent) and having their credit lines reduced (16.5 per cent).

One in seven small businesses were unable to take on new work due to cashflow restrictions – this may have had the effect of prolonging the COVID downturn for many sectors.

“It’s telling that three-quarters of small businesses experienced cash flow issues despite the low-interest rate environment and extensive SME loan support options available,” Sutton said.

“Cash conservation moves by small business owners is understandable given the year they’ve had. The concern is that conserving cash means they are not actively looking to invest in their business to grow, so they run the risk of becoming less relevant in their market.”

Strategies to control cash flow issues

In the wake of the COVID-19 pandemic, the research found that small businesses are planning new strategies to manage working capital.

More than one in four businesses plan to focus on cash flow forecasts. This sensible strategy was much more prevalent for large ($5-20m revenue) SMEs, with 49% planning cashflow forecasting as opposed to only 9% of smaller SMEs (in the $1-5m revenue bracket).

The other main cashflow strategies nominated by small businesses were:

  • One in six intend to use invoice finance to smooth out revenue peaks and troughs
  • One in nine will look to online funders
  • One in nine will rely on their personal finances (such as credit cards) for business expenses
  • One in 10 will look to a new or expanded overdraft

Mr Sutton said it was a red flag for the SME sector if businesses continued to conserve cash rather than put in place funding strategies that could drive growth.

“SMEs said they are trying to grow revenue via new and existing customers – but so many also indicated that they are not looking to invest in the business to grow that revenue,” he said.

“In the pandemic aftermath, there has been a markedly low uptake of the government’s bank loan initiatives, with business owners understandably unwilling to add more debt on to already over-leveraged balance sheets.

“However, the result of this reticence is that many businesses have looked at funding and kicked the can further down the road, instead of sourcing more appropriate business funding solutions.

“If businesses do have cash reserves off the back of stimulus and being more conservative to get them through the pandemic, a great use for those cash reserves is to see an expert adviser to guide you into wise decisions about rebounding, growth and how to fund it.”


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