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It’s time to bridge the cash flow gap

Posted 3 years ago in Small business by Trent Innes
Posted by Trent Innes

Sometimes, numbers in the news wash over us. And other times we stop and do a double take. We know the facts are true, but there’s a chasm running right through the middle of them.

Here are two facts that don’t add up:

  1. There are 2.1 million small businesses in Australia that employ 4 million people and generate a fifth of our national GDP.
  2. An analysis of Xero’s combined invoice statistics found that, over the past six months, one in five invoices payable by ASX 200 companies to small businesses have been overdue by more than 30 days. And there’s more than 3.8 million invoices currently overdue to small businesses on the Xero platform around Australia.

It’s startling that these facts coexist; that such a pivotal part of our economy has to wrestle the fundamental challenges of being paid.

It’s a gaping disconnect — but it represents an incredible opportunity for change.

We spoke to hundreds of small businesses

If we can help bridge the cash flow gap, we can empower small business owners to work the way they want – to hire, invest, develop, expand or simply kick back and relax a bit more. And we know that’s not happening as it should.

This month, we surveyed hundreds of small business owners across the country as part of the Xero – Paying Down to Zero survey, to assess the real impact on Australian businesses. We heard that:

  • Six in ten small businesses would not survive more than three months if all invoices went unpaid. Some 6% of businesses wouldn’t even last a week.
  • Almost half (49%) of businesses said that late payments hinder growth, while 34% can’t purchase more equipment and one in five can’t hire as quickly as they need to.
  • Small businesses said their biggest cash flow concerns due to late payments are the ability to pay suppliers (38%), the ability to pay staff (15%) and declining profitability (24%).

Calling for support

We also asked small businesses to share their opinions on what can be done to alleviate the pressure. Their response was a call for wider support.

As Australia awaits a payment inquiry report from the Australian Small Business and Family Enterprise Ombudsman, 79 percent support of a government-backed policy to shorten the time it takes big businesses to pay.

The thing here, of course, is that while new policies can represent a strong show of support, they also risk increasing the burden of red tape on small business. We will be looking to the government to bring about non-legislative measures that foster and encourage big businesses to do the right thing, and pay fairly.

Because that’s where things get exciting for me, when we support and create change that’s a burden to no one.

Where technology can step up

Take technology and what it’s doing to bridge the cash flow gap.

Two thirds (63%) of the businesses we spoke to have started using technology and software to monitor and manage payments, and offer customers the option to pay online. And, crucially, 95% of the businesses we spoke to said the newer payment methods are “very” or “somewhat” effective in reducing late payments.

We use technology to make pretty much every part of our lives easier and business payments has finally caught up.

As we work hard to develop smart new options for our customers, we watch small businesses have the freedom to do the same.

Visit https://www.xero.com/au/cashflow-gap/ for stories, commentary, advice and more findings. You can also see an infographic about the cash flow gap here.

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