Most Australian small businesses were cash-flow positive for a fifth straight month in October, marking the longest stretch in at least three years and auguring well for the Christmas season. Some 54 percent of businesses on Xero in Australia had more money coming in the door than going out in October.
While that’s a dip from 56.6 percent in September, it’s still encouraging. As the chart below shows, there’s an upward trend in the proportion of Australian businesses with positive cash flow. It’s shaping up to be the best year on record at Xero.
If historical patterns hold, cash flow may slip again slightly in November before rebounding in December. The up-down movement likely reflects an outflow of cash as retailers and other businesses stock up on inventory before Christmas. December is when the percentage of cash-flow positive businesses typically hits its yearly high. The peaks seen in 2017 so far suggest we may be in for a record-setting December.
Part of the explanation for improved cash flow lies in swifter payments to small businesses. Businesses on Xero waited an average 35 days to be paid on 30-day invoices in October, Small Business Insights data shows. That’s a little longer than in September (34.3), but again, the longer-term trend is encouraging. Just as cash-flow positive businesses have increased in 2017, so have payment times fallen.
Improved payment times reflect a broader shift in Australia’s biggest businesses and government. Minister for Small Business Michael McCormack reported last week that federal agencies paid 96 percent of small businesses within 30 days in the year through June. And over half of all invoices were paid in 20 days, McCormack said. That gives the government a head start on its announced policy of paying all businesses within 20 days, beginning July 2019.
“Our new payment terms will set an example to industry and for other levels of government to follow our lead, and establishes a culture where small business should not be used as a bank,” McCormack said.
October was the fourth month that over 40 large companies, as well as several city councils, have honoured a pledge to pay small suppliers within 30 days. Coles and Woolworths supermarkets have committed to 14 days.
Getting paid faster gives businesses the fuel to expand. That could mean taking on more workers. Headcount at small businesses grew by 1.2% month on month in October, Xero data shows. That’s compares with almost no change for businesses of all sizes, according to original employment estimates from by the ABS for October. The hiring was almost entirely powered by a 3% jump in casual staff, which is about 50 percent higher than previous Octobers. If the rate of hiring is sustained, in November, it could suggest retailers anticipate a busy Christmas. We’ll have those updates in the new year, so subscribe now to receive the next Small Business Insights!