The Reserve Bank’s recent announcement that the cash rate target will remain unchanged at 4.35 per cent, which was positively received as a welcome relief for SMEs still struggling with inflation and rising living costs. However, the relief may only be temporary, with Moneytech CEO Nick McGrath warning that any future rise would quickly shift SMEs’ financial position.
McGrath acknowledged that Australian small-business owners have proved to be a very resilient group of people. “SMEs have been really copping it on all fronts but generally holding up well,” he said. “Over the past 12 months, they’ve had to deal with inflation, and supply chain issues, while interest rate increases have impacted their business lending and home loans.”
McGrath noted that cashflow is a big issue for businesses in 2024 as debtors tend to stretch payment periods beyond the initially agreed terms. As a result, SME business owners and also consumer borrowers are increasingly turning to the non-bank lending industry to make up cashflow shortfalls.
“Debtor payment periods are just one of these storms impacting business at the moment, with debtor payment days blowing out at the big and small ends of town,” McGrath said. “[As a result] 30- to 60-day invoice terms are dragging out to anywhere between 90 and 120 days. That’s a lot of time for SMEs to wait to get their money after delivering goods or services.”
To overcome cashflow issues, McGrath suggesteds that SMEs avail themselves of a finance facility can provide some breathing room for their tightening budgets. He is also advising SMEs using finance to deal with slow invoice payment and high cost of living pressures to strive to get a better deal, instead of simply using it just for cash. In particular, he suggests that SME owners ask suppliers for a discount for quicker payment.
“SMEs are paying their own suppliers in 30-, 60-, or 90-day terms. If you pay cash on delivery or a 14-day term, often a supplier will give business owners a discount of anywhere between three to five per cent of the cost of goods sold. The discount generally far outweighs the cost of finance, so make sure any capital from finance is put to good work,” McGrath concluded.
