Research reveals SMEs caught between cash flow pincers

From

Linden Toll

New research by SME Invoice Finance specialist Apricity has revealed that even healthy SMEs supplying larger companies are facing a cash flow crisis, caught between the twin pincers of a covid related slowdown, and longer dated trading terms.

A recent survey of over 900 commercial finance brokers has revealed that, even before the latest NSW and VIC lockdowns were in full swing, their SME clients were facing major cash flow challenges, with 77% indicating cash flow had significantly deteriorated over the first half of 2021.

When asked about the drivers of this cash flow ‘squeeze’, 77% were reported to be invoice related, of which 27% related to the imposition of longer trading terms. This finding corresponds with Apricity research from late 2020 which found almost half of brokers (45%) had seen their clients saddled with longer dated trading terms, despite what was, at the time, a rapidly recovering economy.

With SMEs continuing to struggle due to COVID related slowdowns, especially in locked down states, and with state and federal government business support being watered down relative to 2020, Apricity Finance CEO Linden Toll suggests that even healthy, growing businesses with strong balance sheets could be vulnerable, due to cash flow sequencing risk.

Commenting on the research findings, Mr. Toll said “60- and 90-day trading terms are tough at the best of times but are even more challenging at a time when nearly half the Australian population is under lockdown”.

“The infrastructure, construction and mining sectors may be relatively robust compared to others, but many of their smaller SME suppliers also supply other sectors, many of which are struggling. For these SMEs, the prompt payment of invoices becomes even more essential.

A lot of businesses who are ostensibly healthy and well managed, and who have lucrative contracts with government and some of Australia’s largest companies, may go to the wall simply because they can’t afford to wait 3 months after the work has completed to be paid,” Toll said.

Whilst many specialist, non-bank solutions exist specifically to help these types of businesses and solutions, many eligible SMEs are simply unaware they exist.

“Our recently released Small Business Funding research found that almost half (44%) of all SMEs were unaware of alternative funding sources available to help with these business challenges”, Toll said. “

There is also a reluctance to tap into traditional finance and overdraft solutions, which many SMEs perceive as too expensive and inflexible.” “We could see a longer-term sting in the tail for the economy if this type of scenario stifles the growth ambitions of SMEs and makes them reluctant to take on the big contracts”, said Toll.

“I urge SMEs facing these cash flow challenges to talk to their brokers as soon as possible and explore the wide variety of solutions available to help them accelerate their invoice payments and give them the confidence to keep growing.”

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