Global debtor finance provider, Bibby Financial Services , believes the seeds are now being sown for a bitter harvest of small business insolvencies later this year.
“While the Reserve Bank held interest rates unchanged this month, other developments affecting small business lead us to believe Australia will see business insolvencies climb to a record later this year,” Bibby Financial Services’ Managing Director, Greg Charlwood, says.
“The average time business debts remain unpaid by large companies and government organisations is now over 60 days, more than twice the normal 30 days and according to Dunn & Bradstreet, the highest since 2001. The longer that companies have to wait for payment, the higher the strain on their cash flow,” Greg Charlwood said, adding that the statistics indicate larger businesses are taking longer to pay their debts than small and mid-size companies, putting smaller business under greater pressure.
“It appears this situation is getting worse, rather than better, so we will see a greater rise in small business insolvencies later this year as a result.
“Companies are going into administration at the rate of around 700 a month at present – a near record level. We expect this will climb above last year’s peak of 747 in coming months because of the increasing pressure on small companies,” Greg Charlwood said.
Start-up, small and mid-size companies are experiencing increased difficulty in gaining, renewing or increasing their business funding. This is reflected indirectly in recent business confidence surveys by NAB and State Chambers of Commerce that show confidence levels are now at their lowest ebb since the dot com crash in 2001.
Bibby Financial Services has experienced an increase in demand in the past few months for its cash flow finance services, as a result of banks and other lending institutions tightening their belts.
Bibby is a large global provider of invoice finance in Australia, helping companies improve cash flow and access additional working capital to fund growth by converting up to 90% of the value of each sales invoice into cash within 24 hours.
It also provides an optional sales ledger management service, issuing statements, handling cash allocations, collecting outstanding payments and maintaining detailed accounts of the business’ transactions. This cost effective solution helps free management time to focus on moving the business forward.
Greg Charlwood says there are several precautions a company can take to ensure it maintains cash flow in a difficult trading and credit environment, and these are particularly important for growing companies, whose need for cash flow and working capital is often greater. Precautions include checking the credit status of a new customer, defining and agreeing credit limits, and setting terms and conditions of sale at the outset of a relationship.
“It is important to keep accurate records, and make regular checks that invoices are correctly addressed, that they relate to the goods delivered and include order numbers. Stay on top of your debtor situation and take action immediately when there are problems, following up overdue accounts by phone.
“Use a solicitor only as a last resort, as the legal bill may be out of all proportion to what you are owed. Consider using the experience of a debtor finance organisation that has systems and resources to help you manage accounts receivables cost effectively, in addition to providing the flexible source of funding needed to manage cash flow,” he advises.