Unreliable cash flow can be prevented for SMEs

Cash flow has always been an issue for small and medium businesses (SMEs), who are faced with the harsh reality of needing to pay invoices quickly, while larger businesses’ repayment rates are significantly slower – 1.5 times on average.

The discrepancy between the average late payment days of small and large businesses has an array of negative effects not just for small business owners, but for lenders as well.

Not only is there is a high level of risk for SMEs who frequently experience delayed payments from customers owing a significant amount of money; but they then have to deal with lenders forced to chase overdue debts from the cash-poor SMEs.

Renewed conversation driving change

The recent release of the Australian Small Business and Family Enterprise Ombudsman’s ‘Issues Paper: Payment Times and Practices’, has sparked renewed discussion of the detrimental effects of larger businesses’ late payments to SMEs.

On the back of this, Coles and, more recently, Woolworths, have shown their support of SMEs with new 14-day payment time policy for small suppliers that provide up to $1 million in merchandise – benefiting more than 1,000 small suppliers.

Despite this recent development, the reality is that many big businesses still tend to pay small businesses late, which puts SMEs under financial stress.

Smart analytics to democratise

While small businesses cannot predict all cash flow prospects, they can be empowered through available resources – which many SMEs are not aware of.

Equifax has partnered with cloud-based accounting software company Xero to offer a solution called Live Contacts. It gives SMEs information on the credit risk of potential customers/suppliers/partners to help them determine the likelihood of a business not paying their invoices and becoming insolvent. Small businesses can therefore plan accordingly, minimising their own risk and that of their related banks, lenders and suppliers.

Equifax is also working to simplify credit risk assessment tools and data assets – similar to those used by the banks – and make them available to all businesses.

Equipped and empowered

For many SME owners, the balance between ensuring they are a) properly equipped to assess the risk profile of businesses they’re considering doing business with, and b) finding the right tool to conduct that assessment, is a delicate one. While safeguarding their business against risky companies is paramount, many SME owners simply don’t know where to look to find a solution that can help them.

However, when equipped with credit insights from SwiftCheck and Xero, SMEs can make better management decisions and adjust payment terms for higher-risk customers, reducing risk for themselves and their associates at every stage of the payment cycle.