Inflation and global supply issues are being felt by Australia’s manufacturing industry with new data showing a sharp increase in the number of days outstanding for invoices issued.
“Over the last 6 months the number of days it’s taking debtors to pay their invoices has jumped nearly 40%, stretching from an average of 42 days to 58 days,” says OptiPay CEO Angus Sedgwick.
“The typical terms of manufacturing businesses is 30 days meaning on average our clients are being paid 28 days after the due date of their invoices, so nearly double what it should be,” he says.
“The ramifications of inflation and global supply issues is constrained cash flow and this is having a knock on effect for all businesses,” says Mr Sedgwick.
“We’re seeing the problem exacerbated by rising interest rates, the ATO ramping collection activity for unpaid tax from the COVID period and access to capital from traditional sources drying up.”
“The next 12 to 18 months are going to be a challenging time for Australian SME’s and it is critical that businesses have strong business foundations and a cash flow management plan in order to survive,” says Mr Sedgwick.
Australia’s largest manufacturer of dairy nutrition, Provico Australia turned to invoice financing in November 2020 after a growing demand for nutritional milk products.
“There’s no doubt that it is challenging out there for most businesses at this time so to be able to quickly access the money from sales allows us to better plan our business cash flow and gives us peace of mind,” says Provico’s General Manager of Finance Mark Crees.
“The ability to receive a large portion of the invoice value up front allows us to fund other areas of the business without having to wait up to 50 days for the customer to pay us,” he says.
The business is on track for expansion after purchasing the former Nestle plant at Dennington in 2020 with plans to produce up to 40,000 tonnes of milk powder each year.
“Any business that invoices another business for goods or services on credit terms is a good candidate for an invoice financing facility,” says Mr Sedgwick.
“Businesses can typically access up to 90% of their sales revenue within 24 hours of issuing the invoice. Unlike more traditional business loans there are no ongoing repayments back to the financier as they are repaid when the debtor makes payment of the invoice/s. The fee paid to the financier usually ranges from <1% up to 3% of the invoice value.”
“Cash flow is everything for a manufacturing business and in the current economic times it’s even more important it’s maintained,” he says.
