The cheque is not in the mail – SMEs batten down the hatches

Media Release:

Sydney, 26 September 2012:  Eighty-three per cent of small and medium sized enterprise (SME) decision makers experienced cash flow issues in the past year, most commonly because customers made excuses for slow payments, according to the recent Bibby Barometer Small Business Survey.

As a result, in the last year 23% of SMEs wrote off a bad debt, 32% had customers negotiate to pay in monthly instalments, and 21% had difficulty meeting tax payments on time.

Gary Green, Director, Bibby Financial Services Australia, said, “It is good news that, given their gloomy business expectations, 84% of the surveyed SME business owners put strategies in place to help manage their cash flow.  Thirty-nine per cent spent more time chasing invoices, and 21% delayed payments to their own suppliers or refused to take on more work until invoices were paid (21%). Not surprisingly, 17% of SMEs outsourced their debt collections to a lawyer or debt collection company.

“Some businesses put in place advance warning systems, including conducting cash flow forecasts (27%) or periodic cash flow health checks with their accountants or advisers (19%).  We would like to see all SMEs using forecasts or cash flow checks to warn of danger ahead,” said Mr Green.

“Only 17% of companies are doing credit checks on new customers, which is a concern. Credit checks are an inexpensive way of reducing the chance of bad debts,” he said.

When an SME discovers a gap in its projected cash flow, the range of potential solutions can be somewhat limited in these difficult times.  Twenty seven per cent say they would get an overdraft, or increase their existing overdraft (21%), but 27% would have to resort to dipping into their personal finances or access deposits (20%).

“Another potential solution is debtor finance, and 11% have been researching its use,” Mr Green said.

The latest statistics from the Institute for Factors and Discounters (IFD) for the June 2012 quarter confirm the increasing take up of debtor finance, with the highest factoring turnover figures on record of $1.39 billion for the June 2012 quarter, a 41.1% increase on the corresponding June 2011 quarter. Factoring is defined as the sale by a business and the purchase by the Factor of trade debts on a continuing basis in order to free up cash flow, with the Factor carrying out some part of the sales accounting function.

“We are certainly seeing an increase in enquiries about debtor finance, which is suitable for most non-retail businesses – other than those with very low margins or high levels of doubtful debts,” he said.

Expectations for the year ahead remain gloomy according to the Bibby Barometer – with 77% of SME business owners concerned about customers becoming insolvent in the coming year, 43% expecting the time they must wait to be paid to increase further in the coming quarter, and about half (51%) more concerned about global economic conditions than they were a year ago.

“With only 20% of SMEs planning to invest in their businesses in the year ahead, a cut in interest rates by the Reserve Bank would be welcome,” said Mr Green.

Conducted in mid-August 2012 and the third of its kind, the Bibby Barometer Small Business Survey is a national study run twice yearly, surveying primary decision makers in over 200 non-retail SMEs.