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How Cash-Flow Gaps Hurt SMEs


Everyone likes to be paid on time, but for many small and medium sized enterprises (SMEs), receiving due compensation in a timely fashion means the difference between life and death.

A staggering 60 per cent of Australian small businesses don’t think they would be able to survive for three months if their invoices went unpaid, according to recent analysis by Xero. Unfortunately, this grim outlook represents a harsh reality for many SMEs who are suffering due to unfair payment terms and chronically late suppliers.

Who’s the culprit? Big businesses, according to Xero’s recent survey of over 500 Australian small business owners. Large enterprises have longer mandated payment terms than small businesses, even though they’re less likely to be affected by cash-flow gaps. So while your local food shop has only 30 days to pay their suppliers, large-scale producers often allow themselves extensive terms up to 120 days.

Carefully planning and tailored small and medium business solutions can help, but in this David and Goliath tale of late and unpaid accounts, many SMEs are calling for the government to get involved by enforcing regulation that levels the playing field for small businesses.

The extent of the problem

Small businesses around the country are currently waiting on more than 3.8 million unpaid invoices, according to Xero’s analysis.

Pop-out info: Small businesses around the country are currently waiting on more than 3.8 million unpaid invoices.

Waiting on such a massive amount of money is suffocating for many enterprises that report they are sinking into debt, unable to pay wages, superannuation or rent. Without money coming in, SMEs can’t afford to hire the staff they need or buy new equipment. Essentially, they just can’t grow.

When small businesses don’t get paid, a dangerous domino effect begins. Late or missing money coming in means SMEs can’t pay their own suppliers, and more and more business are affected across various industries.

Nearly half of Australians are currently employed by small businesses, according to Xero reports.  Any major decline would have nationwide economic effects.

Using the right technology can helpcash-flow

About 63 per cent of small businesses now utilise some of the extensive online banking services out there to monitor and chase up unpaid invoices. The vast majority (95.3 per cent) of businesses using tools like BPay and PayPal say they’re “very effective” in minimising late or unpaid bills.

Proposed solutions

Small business owners feel they have very little room to negotiate. In our current systems, big businesses have the power, which results in loose and excessively long payment terms that hinder small business solvency.

Of the 500 Australian small business owners surveyed, 79 per cent said they would support regulation mandating that big business pay faster.

Interestingly, the survey also revealed that the government plays its own role in scourging small business cash flow. More than half (56 per cent) of small business owners polled that they would like to see the government pay their own bills faster and act as an example to big business.

Finding the right business banking solutions

Hopefully, government intervention is on the horizon, but what can you do to ensure the stability of your SME in the meantime? Careful planning can go a long way in minimising major cash flow deficits.

Want to find the right solutions for your business? With expertise across several industries, BOQ offers a range of business banking services to help you grow and ensure that you reach your financial goals.

This blog post is for general information purposes only and is not intended as financial or professional advice. It has not been prepared with reference to the financial circumstances of any particular person or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.


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