Despite strong economic conditions over the past 12 months, an underlying uncertainty among consumers is likely to be front of mind with SME owners & directors into H2FY23.
In their latest bulletin, the Reserve Bank of Australia (RBA) noted that although there are plenty of positives for SMEs in the current financial outlook, there is a marked change in the lending conditions for SMEs (namely, that interest rates on business finance have risen sharply from their historic lows). This, combined with consumer finance uncertainty, is creating challenging conditions for SMEs which would ordinarily have access to finance to meet cashflow shortfalls which are commonplace in small business operations.
The RBA notes trade credit as an important factor in securing short-term financing, particularly for smaller businesses, permitting them to manage cashflow effectively. Unfortunately with trade credit – the RBA also notes – when the (often larger) recipient experiences cashflow (or other financial) issues, the smaller supplier is often the one left out of pocket.
“Late payment times remain high for many small businesses, and the latest payment times report register shows the average standard payment time for small businesses is greater than 33 days.” (Australian Government 2022b)
The report found that smaller businesses typically face higher finance costs than larger businesses, as the major banks believe that SMEs are more than twice as likely to default on financing arrangements than the commercial lending category at large. The introduction of new debt finance products – largely arising from emerging technology platforms – is finding a greater foothold in offering alternative, efficient methods to cashflow bottlenecks and allowing businesses to keep operating in a profitable manner.
Often, one of the reasons many SMEs require this short-term financing is because their clients lack the discipline to pay their invoices on time, causing cashflow challenges for the business owner.
At Debtplacer, we believe that with the right discipline, best-practice accounts receivable policies should address many SMEs need to rely on short-term financing as a way of meeting working capital shortfalls. That’s why as a platform, Debtplacer seeks to be part of the accounts receivable process by providing a streamlined solution that instantly connects SMEs’ overdue invoices with expert collection agencies.
” Inflation is high and has picked up by much more than expected over the past year. Panellists noted that rising prices for fuel, freight, packaging and food has affected their margins and profitability. In response to rising input cost and wage pressures, most panellists stated they have passed through higher prices to their customers.”