Even healthy SMEs are facing a cash flow crisis due to pandemic-related slowdowns and longer-dated trading terms, according to new research from Apricity, the invoice finance specialist.
A recent survey of over 900 commercial finance brokers by Apricity, the invoice finance specialist, revealed that SME clients began to face major cash flow challenges even before Victoria and New South Wales grappled with prolonged hard lockdowns.
A solid 77 percent of respondents said cash flow had "significantly deteriorated” over the first half of 2021.
When asked about the drivers of this cash flow squeeze, 77 percent said they were invoice-related, of which 27 percent related to the imposition of longer trading terms.
This finding is in line with Apricity research from late 2020 that found that 45 percent of brokers had seen their clients saddled with longer-dated trading terms, despite what was, at the time, a rapidly recovering economy.
Apricity chief executive Linden Toll said 60- day 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.
“The infrastructure, construction and mining sectors may be relatively robust compared to others, but many of their smaller SME suppliers also supply other sectors, many of which are struggling. For these SMEs, the prompt payment of invoices becomes even more essential, he said
"A lot of businesses that are ostensibly healthy and well managed, and which have lucrative contracts with the 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 been completed to be paid."
Whilst many non-bank solutions exist specifically to help these types of businesses and solutions, Toll said 44 percent of eligible SMEs are simply unaware they exist.
“There is also a reluctance to tap into traditional finance and overdraft solutions, which many SMEs perceive as too expensive and 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, He said
“Toll urges 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.”