According to the latest research from Apricity, even successful small and medium-sized businesses could remain vulnerable to a possible cash flow crisis brought on by COVID-related downturns.
More than 900 trade finance brokers have revealed that their SME clients began to face significant cash flow issues even before Victoria and New South Wales implemented its recent lockdowns.
These SMEs reported that 77% of cash flow deteriorated significantly in the first half of 2021, of which 77% was related to invoices and 27% to the imposition of longer business terms.
The results are in line with Apricity’s research in late 2020, where they found that 45% of brokers were working with longer-term trading terms despite a rapidly recovering economy at that time.
“The 60- and 90-day trading conditions are tough at the best of times, but they are even more difficult at a time when almost half of Australia’s population is in foreclosure,” said Linden Toll, chief financial officer from Apricity.
With many SMEs supplying large companies in struggling industries, Toll said timely bill payment was becoming “even more essential” amid economic downturns.
“Many companies that are ostensibly healthy and well-run, and have lucrative contracts with the government and some of Australia’s biggest companies, can go to the wall just because they can’t afford to wait three months after the end of work to get paid, ”Toll said.
In addition, around 44% of SMEs are unaware of other sources of non-bank financing that could help them during this period. They are also reluctant to engage in traditional financing and overdraft solutions as they are often seen as too expensive or inflexible.
“We could see a longer-term blow to the economy if this type of scenario stifles the growth ambitions of SMEs and makes them reluctant to take on big contracts,” Toll said. “I urge SMEs facing these treasury challenges to speak to their brokers as soon as possible and explore the wide variety of solutions available to help them speed up their bill payments and give them the confidence to continue growing. “