Most Australian SMEs are anticipating material cash flow impacts to result from the recent introduction of Payday Super reforms, with smaller businesses most susceptible.
Australia’s new Payday Super regime – which commenced from 1 July – is placing immediate pressure on SME working capital with 74% of businesses declaring they were not fully prepared for the change, or they expect their cash flow to suffer.
The headline finding is featured in the latest edition of ScotPac’s SME Growth Index Report – the longest running pulse check of SME business sentiment in Australia – set for release this month.
Payday Super requires employer superannuation contributions to reach employees’ super funds within seven business days of each pay run, replacing the previous quarterly payment cycle.
Smaller SMEs reported feeling the greatest exposure to its impacts: 83% of businesses with annual revenues between $1 million and $5 million are anticipating a negative cash flow hit, compared with 64% of SMEs turning over between $5 million and $20 million.
ScotPac CFO, David Kirwan said the change had transformed superannuation from a periodic obligation into a recurring working-capital event.
“Payday Super doesn’t change the amount of super a business must pay, but it fundamentally changes when that money leaves the business,” Mr Kirwan said.
“For SMEs operating with tight margins or uneven customer payment cycles, bringing forward those outflows can create a genuine liquidity squeeze.
“Even a profitable business can come under pressure when wages, super, supplier commitments and customer payments don’t line up – and that uncertainty is why so many businesses are anticipating cash flow impacts.”
SMEs Look for Cash-Flow Support
Encouragingly, SMEs are taking proactive steps to manage the transition, rather than waiting for pressure to build.
A quarter of SMEs intend to keep the solution in-house by drawing on existing cash balances or equity to manage the transition.
A further 37% of SMEs plan to use an external funding facility, including: Payroll funding (16%); Invoice finance (10%); Overdraft account (5%); Line of credit (3%); and short-term business loan (3%).
Advice for Business Owners
Mr Kirwan urged SMEs to model and assess Payday Super impacts across multiple payroll cycles, rather than waiting for a shortfall to emerge.
“Every pay run now has the potential to reduce funds available for suppliers, inventory, equipment and business investment,” he said.
“SMEs should map the timing of customer receipts against wages, super and other major commitments. That helps identify pressure points early and distinguish a temporary timing mismatch from a more persistent trading issue.”
Mr Kirwan added that brokers and advisers had an important role helping businesses quantify any working capital shortfall before pressure intensified.
“Where a genuine timing gap exists, appropriately structured finance can help preserve liquidity and keep essential expenditure and investment on track,” he said. “The right facility should match the business’s operating cycle and repayment capacity.”
ScotPac provides a range of working-capital solutions, including invoice finance and revolving facilities tailored to the timing and scale of an SME’s cash-flow needs.
About the SME Growth Index
- Commencing in March 2014, ScotPac’s twice-yearly SME Growth Index is Australia’s longest-running research report on SME sentiment towards revenue growth prospects.
- The Round 25 research was conducted by East & Partners who interviewed 727 SME enterprises with annual revenues of A$1 million – $20 million.
- SMEs surveyed have operated continuously for an average of 16.6 years and manage, on average, 50 full-time equivalent employees.
______________________________________________________________________________
ScotPac is Australia and New Zealand’s largest non-bank SME business lender, providing funding to small, medium and large businesses from start-ups to enterprises exceeding $1 billion in revenues. For over 35 years, ScotPac has helped thousands of business owners succeed, offering fast and flexible funding. From simple to complex, small to large, start-up, growth or turnaround – ScotPac can help with a range of funding including Invoice Finance, Trade Finance, Asset Finance, Line of Credit, Business Loans and Asset Based Finance. ScotPac was recently awarded The Adviser Magazine’s Debtor Finance Loan of the Year for a seventh time.
For more information contact:
Todd Hayward – Mob: 0412 205 151
