Cash-strapped SMEs start to plot way out of downturn

Brand new payment data suggests that SMEs were struggling with cash flow issues long before the coronavirus lockdown measures came into play.

The figures, released by CreditorWatch, found that payment times by small and medium businesses stretched out by an average of nearly 40% per cent in Q1 of 2019. This demonstrates that businesses were suffering from cash flow problems well before the COVID-crisis.

According to CreditorWatch, the industries most impacted by increased payment times over Q1 2019, include: 

• Agriculture - payment times rose by 48% in Q1

• Construction - payment times rose by 40% in Q1

• Retail - payment times rose by 71% in Q1

• Transport, postal and warehousing - payment times rose by 106% in Q1

• Professional, scientific and technical services - payment times rose by 118% in Q1

It’s not all doom and gloom though. Credit enquiries, performed on CreditorWatch’s platform, are a live indicator of business activity and increased by 36% in the penultimate week of April. This follows significant drops across February and March and shows that businesses are tentatively investigating new customers and customer creditworthiness. In the week commencing 27th April, credit searches dropped a small amount again, by 6% from the previous week, but were higher than any week since w/c 8th March.

CEO of CreditorWatch, Patrick Coghlan, thinks SMEs still face a tough road ahead. But, with government measures now in place to relieve immediate pressure on small businesses and lockdown measurers being slowly eased, there is hope for Australian small businesses.

Key insights from Patrick Coghlan, CEO of CreditorWatch: 

• “The health of the SME sector gradually worsened over the course of 2019 and in Q1 we saw a further substantial increase in payment times, indicating that SMEs had reduced cash reserves and were unprepared for the current downturn.”

• “Delayed payment times are an early indicator that businesses may be heading down the path to administration. Even in normal times, 50 percent of businesses that default on a payment go into administration within 18 months. So increases in payment times of nearly forty percent suggests that SMEs will need to find significant injections of capital to start-up again once lockdown measures are lifted.”  

• “However, it's positive to see credit enquiries performed on CreditorWatch’s platform increasing in the last fortnight. This means that businesses are performing due diligence on new and existing customers, suggesting that SMEs are tentatively considering re-starting operations.”

• “Further government support will be needed – particularly in regards to administration services – once the ATO Safe Harbour measures end and small businesses are forced to consider their options.

About CreditorWatch

CreditorWatch is a digital credit reporting agency, headquartered in Sydney. From sole traders through to ASX listed companies, more than 50,000 Australian businesses now use CreditorWatch to make affordable, informed credit decisions, avoid high-risk customers and ensure they get paid on time. CreditorWatch customers can easily search for and monitor the credit history, court actions, payment defaults and insolvency notices associated with any business entity in Australia (including sole traders, trusts and partnerships) giving them an incredibly accurate picture of the risk posed to their business. 

The company was founded in 2011 and has offices in Sydney, Melbourne and Brisbane. Find out more at www.creditorwatch.com.au