Small to medium enterprises (SMEs) in Australia are increasingly finding difficulties in obtaining appropriate finance. There are a range of reasons why this is the case, although it certainly became a serious concern a few years ago, in the wake of the Royal Commission into financial services. The RBA has consistently found data to support that SMEs are finding it more difficult to get the finance they need, and COVID-19 has only made matters worse. SMEs without real estate backing hit a wall when applying for unsecured funding from the banks while smaller businesses are again disproportionately affected by the pandemic, as the industries that they operate under have been hit harder.
Hospitality and tourism operators are often small businesses, such as cafes and restaurants that employ millions of Australians. While government support has been helpful to keep employees on the books, there is no definitive answer to when the pandemic will alleviate. The Australian business community needs to address the underlying issue that prevents SMEs from accessing the finance they need to flourish. The big banking sector is not well equipped to meet smaller businesses, leading to the rise of innovative non-bank lenders. Let’s take a deeper look into the cause, what the government is doing about it and what your SME can do to tackle the problem proactively.
Paying Invoices is a Serious Challenge for Australians
Working capital is critical for every business, small, medium and large. Without it, suppliers can’t be paid, employees are left stranded and investments can’t be made. Before looking at external financing, a sustainable business is able to generate sufficient working capital organically. Managers can monitor expenses and track income although they are still reliant on customers paying on time. An unfortunate statistic is that Australian invoice payment times were amongst the worst in the world, with invoices being paid on average a staggering 26.4 days late.
This same study found that larger companies are extending their payment terms from beyond 30 days, up to 90 days sometimes. This has been acknowledged by the government and there have been reports over the last few years suggesting that legislation should require minimum repayment times for larger businesses. Whether this happens or not is to be seen, however, the government has now committed (from the beginning of last year) to making all its payments within 20 calendar days to support cash flow for all its suppliers.
Government and Political Support for Small Businesses
In good news, the federal government has revealed a new policy designed to address part of the issue. Named the Payment Times Procurement Connected Policy, it requires businesses that are awarded any government contract to pay their supplier’s bills within 20 calendar days. Minister Stuart Robert said that “late payments are a significant issue in Australia, and it’s an issue that disproportionately impacts smaller businesses, dealing with it is in all our interests, and improving payment times will help these businesses prosper, grow and employ more Australians.” Large businesses will also be required to report their payment terms and practices to increase transparency when it comes to paying small suppliers, as well as create public incentives to make improvements.
Invoice Finance is an Excellent Alternative
An increasingly popular solution in Australia is invoice finance. Invoice finance allows SMEs to access cash sooner from unpaid invoices. Invoice finance providers will pay up to 90% of the verified outstanding invoice value upfront. When your customer pays and the funds are received by the invoice finance provider, they’ll remit the remaining 10% minus a small fee (could be a little as 1% of the invoice value), to compensate for early funding. SMEs can use this cash instantly to pay their bills, secure new suppliers or invest in growth opportunities.
While invoice finance can be a great solution to access cash upfront, the event of non-payment is also covered by TIM’s cash flow funding solutions. TIM includes a form of trade credit insurance as an additional layer of protection. If customer/s default on their payments, TIMSecure™ protects you by covering up to 90% of the invoice value issued to your debtor and funded. It also covers the legal costs to chase your client (the debtor).
A financial product is only as good as its provider, so get yours from a partner that will help your business grow with fast and flexible funding. Make an educated decision to solve your current access to working capital, TIM Finance is here to help you with your business financing.