According to a recent report prepared by Accenture and Xero, Australian small businesses are faced with cash flow problems due to three key reasons of delayed payments, seasonal slowdowns, and rising expenses. Following a review of data from more than 200,000 businesses in Australia, New Zealand and the UK, these challenges were found to be early indicators of cash flow problems likely to affect small businesses.
The analysis found that 48% of invoices issued by Australian small businesses had been paid late, with 10% being paid over a month after they were due. It was also found that on average, these invoices were paid 6.4 days late, costing the small business sector some $1.1 billion each year. Up to 80% of small businesses that receive late payments were also found to suffer 17% more cash flow crunches.
When it came to the issue of rising expenses, small businesses were found to be experiencing about the same level of utility costs as the previous year but were struggling under increased wage expenses and rental costs in 2021. It was also established that small businesses tended to suffer a revenue speed bump in the months of January and February, during which they received 20% less income than the other months of the year.
Xero also reported that cashflows did improve in 2020 and 2021 thanks to government support for the small business sector during the pandemic, however, Australian small businesses still experienced 4.2 months of negative cashflow during 2021. Repeated cashflow crunches are detrimental to the ability of small businesses to grow and thrive, hence the need for accounting professionals to help in understanding the cause of this cashflow stress.
Chief Customer Officer for Xero, Rachael Powell, said that these delayed payments threatened business owners’ ability to fulfil other obligations such as timely payment of wages and rent. She also added that they created a flow-on effect that could lead to unnecessary accounting complications. Powell noted that though issues such as rising expenses and seasonal fluctuations in customer demand could not be controlled, businesses needed to send a clear message that late payments would not be acceptable. She urged the development of policies and penalties for those who contributed to the problem.
The use of digital tools has been advocated as a means of tackling cashflow problems for SMEs. From cashflow software for tracking invoices to online electronic payment channels for quicker payment processing, various technologies can be exploited to help businesses carry out different functions more efficiently and effectively.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients. Find out why.