SMEs seeking access to cash to pay for wages and stock

According to new research from business management platform MYOB, Australian small and medium sized enterprises (SMEs) are seeking financial assistance to fund immediate needs such as wages or stock, but are unaware of some short term, alternative financing methods available to them.

The survey of 1,000 Australian SMEs showed over a third (39%) have faced cash flow issues since March, with a further 48% experiencing finance pressures in the six months prior. This has resulted in 28% seeking financial assistance within the last year and a further 28% planning to do so within the next 12 months.

The findings show businesses need financial support to cover critical costs like wages and supplies (26%), buy or upgrade equipment (34%), improve cash flow (30%) or pay for operating expenses (27%). When applying for business finance, immediacy to cash was an important factor for almost a third of respondents (32%).

“Businesses are currently facing really tough financial pressures due to rising costs across wages, energy and fuel[1] and record high purchase costs[2],” notes Steve Price, head of go to market for financial services at MYOB. “We’re looking at the highest quarterly wage increase in ten years[3], with our recent research showing over half of Australian SMEs have increased salaries in the past year, while raising employee pay is a priority for 4 in 5 businesses[4].

“Adding to these pressures is the fact that small businesses often have to navigate late payments from customers which can really impact their cash flow[5]. The upcoming holiday season is renowned for being the time of year SMEs face the slowest payment times on their invoices, so keeping a steady hand on cash flow is key to helping a business survive in this climate,” adds Mr Price.

Indeed almost three quarters of business (74%) surveyed for the MYOB Business Monitor in June said when they need cash they need it straight away, and over half (54%) noted by the time funding from a bank or financial institution is approved, their cash flow issues are already resolved.

Closing the late payments cash flow gap

While many SMEs deal with seasonal late payments, there are certain industries that face large delays on payments all year around, such as the construction industry, as CEO of Master Builders Australia Denita Wawn explains: “Our industry unfortunately deals with long waits between providing work and receiving payment due to contractual arrangements. This can really hamper construction businesses’ ability to maintain a steady cash flow, especially now when they’re facing such record price increases due to supply and labour shortages.”

“If you’re needing to order more materials or pay additional wages in order to complete a project but you’re still waiting to be paid yourself, knowing how to smooth over the interim cash flow gap could be a deal breaker.”

According to the latest MYOB findings, half of the construction businesses surveyed experienced cash flow issues within the past year.

SMEs unaware of non-traditional finance options

One established option available to SMEs to help smooth over short-term cash flow issues is invoice financing, yet the research uncovered that over two thirds (68%) of businesses surveyed had never heard of this. 71% of respondents confused it for another form of financial assistance and only 1 in 10 (15%) had used it before.

Through invoice financing, businesses can access the amount due on an invoice as soon as it is sent out, avoiding any delays between supplying a service or product and receiving payment.

“The lack of awareness signals that at a time when SMEs are feeling the pinch, many could be missing out on a fast and effective way of easing cash flow shortfalls. It’s so important that SMEs understand what cash flow management tools are suitable for them, which is why our business management platform directly links businesses with fintechs such as Butn, so they can assess what short-term cash flow solutions are appropriate for their business and access the cash they need securely, easily and quickly,” adds Mr Price.

Upon learning more about invoice financing, 58% of SMEs surveyed believe it could be an effective option for them and 53% would consider using it in the near future.

Rael Ross, CEO of fintech Butn, explains: “Cashflow management and access to cash is a critical enabler for SMEs. Companies seeking ways to handle cashflow or find the capital they need to fund a transaction are often unaware of the financial options available to them to secure the cash they need, when they need it. Butn seeks to change this by supporting SMEs and sole traders with an embedded finance solution that is direct, fast and allows businesses to seize on opportunities that otherwise would not have been available to them.”

“Butn’s invoice financing capability is fully integrated into MYOB’s business management platform meaning SMEs can access a secure, low-risk and affordable cashflow solution without the need to leave the platform, and with sign-up and application taking minutes, it can really help businesses keep the lights on and grow.”

Mr Price concludes, “Our partnership with Butn is part of our commitment to providing SMEs with a complete view of their business so they act and adapt as they need, with confidence. It lets us offer SMEs the ability to assess their operating costs, stock levels and payroll against their current and forecasted cash position, what invoices are upcoming or outstanding, and access funds from these invoices – all in the one place.”

To find out more, please visit the MYOB website here.

[1] ABS Business Indicators, June 2022
[2] NAB Business Index
[3] ABS Price Index, June 2022
[4] MYOB SME Success Report, September 2022
[5] Payment Times Reporting Regulator Report 2022

 

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