According to Bibby Financial Services , small businesses are facing an economic crisis. Big business is taking more than 60 days on an average to pay bills, which illustrates that pressures are growing.
Dunn & Bradstreet’s quarterly Trade Payments Analysis (released 28 January) revealed that businesses averaged 56.5 days to settle accounts in the December quarter, making invoice payments the slowest they have been since 2001. Big business is often the worst offender, taking more than 60 days to pay bills.
Reports of chronic slowness in payments by New South Wales public health bodies in recent days indicate government organisations are not always quick to pay invoices.
Bibby Financial Services observe that deteriorating payment terms puts the cash flow under strain for smaller businesses as they still have to pay their staff on time. With the economy slowing and retail spending drying up, cash flow pressures for many are at a breaking point.
Bibby Financial Services add that small business has been under other pressures for the past 12 months, with the global credit crisis prompting local banks to reduce credit availability from early last year.
Reports that the International Monetary Fund (IMF) are expecting Australia’s economic growth will slide to almost zero this year add to the gloomy outlook for small business, which is the largest single employer group in Australia responsible for 3.6 million jobs.
Bibby Financial Services have experienced a demand for their debtor financing in recent months, due to the deteriorating conditions for small businesses. According to the Institute for Factors and Discounters, this form of financing contributes $66 billion a year of SME funding in Australia and New Zealand.
Debtor financing maintains a company’s cash flow by converting up to 80% of the value of each sales invoice into cash, usually within 24 hours.
Once payment is received on the invoice, the remaining 20% less a service fee, is returned to the company. It is an effective way to increase cash flow, providing funding for the cash gap between invoicing and payment.