Our Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia’s small to medium sized business sectors showing cashflow issues that many businesses face today, below is the fifth out of the six key insights in our March 2018 report:

SMEs cash flow problems

Australia’s SMEs are united in agreeing that cash flow problems are a major inhibitor of growth – but they have adopted a disparate range of responses to how they deal with managing their working capital.

Small business operators are opting for everything from conducting credit checks on new customers to sacking old customers that are no longer profitable.

The SME Growth Index found that the most popular working capital management method was the short term, expensive and unsecured credit line of credit cards, with almost 67% of respondents saying they would use personal finances such as credit cards to ease cash flow.

The personal finances and credit cards option came in just ahead of undertaking cash flow forecasts (65%) – which indicates that more than a third of SMEs surveyed are “flying blind” about their business’ cash flow status.

One in two SMEs (51%) will offer customer discounts for early payment in an attempt to reduce debtor days and actively manage working capital.

Other working capital management strategies included making arrangements with the ATO regarding tax payments (16%), taking out an overdraft (14%), spending more time chasing invoices (12%), reducing overall sales (9%) and using debtor finance to smooth out cash flow peaks and troughs (7.5%).

Very few SMEs plan to engage debt collectors (4.9%) or take out credit insurance (2.6%).

When asked “which cashflow issues have you experienced in the past 12 months?”, the main problem SMEs reported was issues with government red tape and compliance (70.9%).

This was of much greater concern to them than suppliers squeezing payment terms (38.4%) and late customer payments (37.2%).

Only one in 10 SMEs said they had no cashflow issues in 2017. While businesses are enthusiastic about the low cost of credit that is on offer, they consider the conditions surrounding that credit as a major barrier to business growth. 

SME owners ranked “availability of credit” and “conditions of credit” behind only “high/multiple taxes” as the main impediments to expansion (these issues were growth barriers for 67.6%, 66.6% and 77.6% of SMEs respectively).

The responses stand in stark contrast to their ranking of “cost of credit”: near the very bottom of the list of key barriers, ahead of only “Other” and “None”.

So, while the sticker price of credit is cheap, the conditions traditional lenders have attached to that credit rival only taxes in their ability to stifle growth.