Cash flow increasing problem for SMEs

by Rebecca Pike09 Oct 2018

A new report has shone a light on the growing prosperity gap among small and medium enterprises (SMEs), providing an opportunity for brokers to help.

According to the Scottish Pacific SME Growth Index, more than half of Australian SMEs are forecasting improved revenue.

However, problems like cash flow and the slowing property market is making the growth much harder for some.

The report says that more businesses are in growth mode than at any time since March 2016 and Scottish Pacific senior executive Wayne Smith said that was a really crucial time to have access to funding. 

He said, “They’re clearly time poor and they’re concerned about cash flow and probably a bit confused about what options they have got in terms of how they can fund their business particularly in the growth phase.”

However, while more businesses are forecasting positive growth, those performing poorly are in significantly worse shape than they were four years ago.

Cash flow is an increasing problem for the sector and the property market has left many unable to go to mainstream banks for extra funding.

Smith said, “The default position of people in business is to leverage off the value of their personal property and while that value continues to increase they have been able to increase funding loans from the banks.

“That's something now that’s changing and that’s challenging for them. They also are challenged by the customers wanting to take longer to pay and suppliers wanting to be paid quicker which is squeezing them at both ends. So it’s not a surprise to me they’re battling with managing their cash flow.”

Smith said this is a time brokers can come into play to help SMEs find an alternative lender to help with their funds.

He added, “I think overall they should remain positive, funding is available from a variety of sources.

“There are more lenders in the SME space now. Alternatives to banks and banks themselves. There are more lenders now than there have ever been so there’s a different supply of options.

“I think for brokers it’s a big opportunity to get across what these alternatives are, what they can do for the customers and then start to have some different conversations with their customers around how they’re going to fund their growth. I think it’s a great opportunity for brokers and they’ll play a key role.”

According to the index, 96% could name a key reason to borrow from an alternative lender, with fast credit approval and reduced compliance the main drawcards.

Almost one in ten business owners said revelations from the banking Royal Commission would prompt them to seek out non-bank alternatives.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said that Scottish Pacific’s latest SME Growth Index identifies the issues most raised with ASBFEO by SMEs across the country.

She said, “Extended payment times impact business cash flow, which is critical to SME day-to-day operation. Reduced cash flow impacts the ability to pay staff, superannuation and the quarterly BAS, and an overly complex workplace relations system inhibits employment, which in turn inhibits growth.

“The Index also points out SMEs are looking at alternatives to banks to access finance, including invoice finance, fintechs, government grants and crowdfunding. We’ve done considerable work in this space, recently releasing our Affordable Capital for SME Growth report and Borrowing from fintech lenders guide.”

The index, compiled by East and Partners, provides a national snapshot of 1252 businesses with $1-20m revenues across all states and major industries.

Demonstrating the growing problem of decreasing cash flow, the index showed 79% of SMEs had said cash flow issues caused the most sleepless nights, up from 73% in 2016.