SMEs face challenged outlook as payment times blow out

  • By Christine St Anne

Businesses are struggling with significant cash flow issues, with data revealing that payments in June were overdue by an average of 49 days across all industries – a 342 per cent increase from June 2019.

The data was revealed by CreditorWatch, which supports a previous assessment made by the firm.

CreditorWatch said that the latest data on overdue payments show that businesses are relying heavily on government subsidies and lenient creditors for survival.

CreditorWatch’s data also shows some SMEs have been relying on these incentives to delay entering into administration.

In June 2020, there was a 20 per cent decrease in SMEs entering into external administration compared to May 2020, and a 50 per cent decrease compared to June 2019.

There has also been a 17 per cent decrease in court actions and 25 per cent decrease in payment defaults compared to last month.

“We’re likely to see a significant jump in the number of businesses coming out of hibernation and entering into administration in the coming months.” CreditorWatch CEO Patrick Coghlan said.

“Government stimulus packages like JobKeeper, JobSeeker, mortgage holidays and the much-needed Safe Harbour changes have provided businesses with a buffer of protection.

“Until now, the priority has been to keep as many businesses as possible above water.

“Come September, support packages will be lifted and we’ll find that a substantial number of ‘zombie businesses’ have been kept artificially afloat,” Coghlan said.

He added that banks will not be prepared to prop unviable companies and nor should taxpayers, however, he echoed his previous view that the government can ease the impending insolvency curve by lifting Safe Harbour measures gradually and forming an administration service to support the industry.

Business insolvency was among the hot button issues that were raised at the parliamentary hearings with ASIC on Wednesday.

ASIC executive director Warren Day said that the regulator was working closely with small business ombudsman and small business commissioners to work with SMEs around insolvency issues.