Survey: Most SME cash flow issues stem from customer tardiness

cashTNResults from the recent Bibby Barometer Small Business Survey have found that the most common cause of cash flow issues for SMEs in the past year has been customers making excuses for slow payments.

Results from the recent Bibby Barometer Small Business Survey have found that the most common cause of cash flow issues for SMEs in the past year has been customers making excuses for slow payments.

The survey found that 83 per cent of SMEs endured cash flow issue in the past 12 months, with 23 per cent writing off a bad debt; 32 per cent negotiating monthly payment instalments with customers; and 21 customers having difficulty meeting tax payments on time.cashLG

However, the survey also found that 84 per cent of SME business owners put strategies in place to help manage their cash flow to negate such issues.  These strategies included:

  • Spending more time chasing invoices: (39 per cent);
  • 22 per cent delaying payments to their own suppliers or refusing to take on more work until invoices were paid: (21 per cent); and
  • Outsourcing their debt collections to a lawyer or debt collection company: (17 per cent).

“Some businesses put in place advance warning systems, including conducting cash flow forecasts (27%) or periodic cash flow health checks with their accountants or advisers (19%),” says Bibby Financial Services Australia Director Gary Green. “We would like to see all SMEs using forecasts or cash flow checks to warn of danger ahead.

“Only 17 per cent of companies are doing credit checks on new customers, which is a concern. Credit checks are an inexpensive way of reducing the chance of bad debts.”

When an SME business owner discovers a gap in projected cash flow, the range of potential solutions can be somewhat limited. According to Bibby’s survey, 27 per cent would get an overdraft; 21 per cent would increase their existing overdraft; 27 per cent would resort to dipping into their personal finances or access deposits (20 per cent).

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