The recent announcement by the Reserve Bank to leave the cash rate target unchanged at 4.35% came as welcome relief for SMEs grappling with inflation and rising living costs.

Moneytech CEO, Nick McGrath acknowledges that Australian small business owners have proved to be a resilient group of people. “SMEs have been copping it on all fronts but generally holding up well. Over the past 12 months, they’ve had to deal with inflation, and supply chain issues, while interest rate increases have impacted their business lending and home loans,” he said.

McGrath identifies cash flow, primarily impacted by debtors stretching payment periods beyond agreed terms, as the big issue for business in 2024. SME business owners and also consumer borrowers are increasingly turning to the non-bank lending industry to make up cash flow shortfalls.

“Debtor payment periods are just one of these storms impacting business, with debtor payment days blowing out at the big and small ends of town. 30 to 60-day invoice terms are dragging out to anywhere between 90 and 120 days. That’s a lot of time for SMEs to wait to get their money after delivering goods or services,” McGrath added.

To overcome cashflow issues, a finance facility can give tight budgets breathing room. SMEs using finance to deal with slow invoice payment and cost of living pressures are advised by McGrath to put their finance to work by getting a better deal, instead of simply using it just for cash.  

Negotiating terms with suppliers is just one of the ways better cashflow from a finance facility can improve the bottom line. According to McGrath, SME business owners should ask suppliers for a discount for quicker payment.

“SMEs are paying their own suppliers in 30, 60, or 90-day terms, if you pay cash on delivery or a 14-day term, often a supplier will give business owners a discount of anywhere between three to five per cent of the cost of goods sold. The discount generally far outweighs the cost of finance, so make sure any capital from finance is put to good work.”