If you’ve been in the retail game for more than five minutes, you’ll have no doubt clocked the fact that Australian customers have begun tightening the collective purse strings of late.

Four in 10 consumers have cut back on discretionary purchases, such as takeaway lunches, coffees and entertainment, according to the NAB Consumer Sentiment Survey Q4, 2022.

With rising interest rates and soaring inflation continuing to put the squeeze on B2B buyers and consumers alike, shoring up sales and margins has become a pressing imperative for many retail organisations.

Some have found doing so an insurmountable struggle. More than 400 retail trade businesses went into administration in 2022, according to NAB’s Insolvency in the Spotlight report published in April 2023. The sector accounted for seven per cent of all insolvencies that year and signs suggest the rout is far from over.

Respected restructuring and insolvency firm McGrathNicol has flagged the fact that this is the first year in which businesses will no longer be the beneficiaries of Covid-related government support programs, nor the leniency displayed by major lenders throughout the pandemic era.

‘In addition to a normalisation of the rate of corporate failure, we expect that economic and regulatory factors will lead to more insolvencies. Businesses experiencing distress will have less support from available stakeholders to successfully effect a turnaround,’ the firm’s 2023 Forecast noted.

The great payment slowdown

When times are tight, many business customers become less dedicated to paying their bills on time. It’s not uncommon to see enterprises deliberately holding back funds for an extra few days or weeks, until a reminder notice or two are received.

If your retail business is regularly exposed to this form of payment ‘go-slow’, you’ll know just how much time and effort it takes to chase up reluctant debtors.

And you’ll also know what a difference those extra days and weeks waiting for a remittance can make to your balance sheet, profit and loss statement and cash flow – in short, to the health of your enterprise.

If your working capital is badly affected, you may be forced to access a finance facility, in order to meet your own commitments. Opportunities to accept large orders or purchase stock in bulk, on favourable terms, may have to be declined.

Meanwhile, rent, payroll and other operational expenses still need to be met, if you’re to keep the lights on and the doors open for trade.

The automation advantage

Fortunately, there are steps you can take, to minimise bad debts and get payments flowing into your retail business faster.

Implementing an automated accounts receivable platform can boost efficiency; by streamlining the collection and discharge of debts, and the dunning process.

Many Australian retailers currently operate in manual mode; using legacy accounts receivable processes and solutions to track outstanding invoices and pursue customers whose payments are overdue.

Businesses that have made the switch have reduced their manual processing activity by 85% and can reduce their unapplied cash and payments by 99%.  At the same time, they are increasing their productivity in collections by more than 35% while slashing aged debt to  under 30%.

Trading smarter

Automating your accounts receivable function doesn’t just boost cash flow by making the collection of payments more efficient. It can also allow you to make smarter decisions about the organisations to which you extend credit.

Identifying debtors that regularly fail to comply with payment terms is a straightforward matter, when you’ve able to maintain up to the minute visibility into the payment status of your customer base.

Once you know who the bad payers are, you can decide what to do about them. In some cases, you may opt to modify your trading terms; revoking or reducing credit for repeat offenders, for example. In others, you may decide to implement an automated follow-up process that reflects a customer’s typical payment behaviour.  Should they only settle their account after two email reminders and a phone call, for example, taking those actions in rapid succession may result in swifter settlement.

Taking control of your accounts receivable process in this way limits the opportunity for bad payers to drive you into cash flow stress, or for bad debts to catch you unawares.

Staying afloat in today’s tough times

With challenging conditions expected to persist for the foreseeable future, protecting profitability and cash flow is critical, for Australia’s hard pressed army of retailers.

Taking advantage of the benefits of an automated accounts receivable platform can help you do so, quickly and cost effectively. If you aim to be trading profitably, a year or two hence, it’s foundation technology you can ill afford not to have in your finance stack.

Danny Wheeler is solution strategy and marketing manager at BlackLine.