Even thriving small- and medium-sized enterprises could be left vulnerable from a possible cash flow crisis brought about by COVID-related slowdowns, according to the latest research by Apricity.
Over 900 commercial finance brokers have revealed that their SME clients began to face significant cash flow challenges even before Victoria and New South Wales enforced its recent lockdowns.
These SMEs indicated that 77% of cash flow had significantly deteriorated over the first half of 2021—77% of these related to invoices and 27% related to the imposition of longer trading terms.
The results are in line with Apricity’s research in late 2020, where they found that 45% of brokers toiled with longer-dated trading terms despite a rapidly recovering economy at that time.
“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,” said Linden Toll, finance chief executive officer at Apricity.
Considering that many SMEs supply for large companies in struggling sectors, Toll said timely payment of invoices becomes “even more essential” amid the economic slowdowns.
“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 three months after the work has completed to be paid,” said Toll.
On top of that, around 44% of SMEs are unaware of other non-bank funding sources that could aid them during this period. They are also hesitant to dive into traditional finance and overdraft solutions as these are often perceived as too expensive or 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.”