Are you Using Personal Finances to Cover Payment Delays?
If you are an Australian business owner using personal finances to fund your business, know that you are not alone. In fact, two-thirds of all small business holders use private funds to help them keep their business afloat.
And if cash flow matters were not complicated enough, to make matters worse we are now seeing a rather troubling trend from big Australian companies. Big businesses are using their market dominance to crowd out smaller businesses by delaying the payment of their invoices. Statistics from Dun and Bradstreet show that large firms pay on average terms of 50 days, and in some cases up to 90 days on a 30-day term invoice. Woolworths, as an example pays on 60-day terms, which can be difficult for many small businesses servicing the giant superstore chain.
While it might not sound like a huge problem on the face of it, it can have an enormous effect on businesses who are already struggling with internal and external cash flow issues. Even a small delay in payment can have an impact on ongoing business expenses such as wages, rent, superannuation, transport, and power. These problems then start to influence the business owner’s private cash flow status prompting delays with car payments, education fees and mortgages. The stress that is incurred when this happens has an adverse effect on small businesses, small business owners and their family relationships. And as patterns of payment delays and default issues from B2B transactions seem to be worsening, small businesses are struggling now more than ever.
If you look at the mining industry in detail, you will see that they are known for their late payment strategies – around the 52-day mark. Note again this is the average. Some may pay within a 30-day term while others can hold off for up to three or four months. For a small business, this is the difference between success and insolvency. Quite simply, small businesses have very little bargaining power up their sleeves. Large organisations can take their business elsewhere on a whim. Small businesses just don’t have that kind of luxury.
Is it any wonder that so many small businesses are having to dip into their personal savings to tide them over? What alternative do they have?
Yes, it’s possible to approach their lenders for finance, but while the need for cash is pressing, the lending process can be slow and therefore too late to meet SME needs. Of course, there is also the requirement to provide some sort of security against the loan and more often than not, that is the family home. In reality, SMEs are still relying on their own assets even with the support of their lenders.
Big business is always going to have the advantage when it comes to payment terms, but there is a way to keep them as clients and still cope with the interruption to your cash flow. If you are a small business owner in need of fast cash, think beyond bank loans and your own personal savings. Consider invoice finance which solves your cash flow problem quickly, and without threatening your personal finances.