Optimism is on the rise but cash flow and access to credit are troubling Australian small to medium business owners, finds the latest edition of the Scottish Pacific SME Growth Index, released March 2017. The poll of over 1200 CFOs and corporate treasurers found fewer than one in ten firms say they are content with their cash flow.

Fewer than 1 in 10 SMEs are content with their cash flow.

Cash flow constraints are seen across growth, consolidating and negative growth SMEs: seventy percent of SMEs across the board say revenues over the past 12 months would have been more than five percent higher if cash flow was improved (the smaller the business size, the greater the negative impact of cash flow). The Index found that an additional $1.87 million in additional revenue per SME could have been generated in 2016 if cash flow constraints were alleviated.

$1.87 million in additional revenue per SME was lost due to cash flow problems.

With Australian SMEs ($1-20m) representing $1.3 trillion of the $5 trillion total revenue generated by Australian enterprises, the estimated revenue losses attributed to cash flow problems equates to approximately $222.5 billion in unrealised revenue gains that could have been generated across the economy in 2016.

SME revenue into Australian economy

Scottish Pacific SME Growth Index March 2017


‘When asked approximately how much additional revenue their business could have generated in 2016 had cash flow been better, it was clear working capital constraints remain a major headwind for small businesses nationwide.’ – Peter Langham, CEO, Scottish Pacific

Over 99 percent of growth SMEs have plans for innovation, with the expected benefit being improved revenue: 10 percent of growth SMEs predict revenues to increase by more than 50 percent; around 3 percent predict revenues will at least double in the next 12 months. Still, one in three SMEs have no plans for innovation in 2017.

While many businesses may look at additional financing to cover cash flow shortfalls, the Index found that availability of credit, conditions of credit and cost of credit were among the top barriers to growth.

So what can SMEs do to improve cash flow?

Improve working capital by improving collections
Time is money and in the case of accounts receivables, every day that an invoice is unpaid costs your business money.

Take the example of fictitious company, Medical Supplies XYZ. With an annual revenue of $5 million, each day that receivables remain uncollected costs the company $13,698 in working capital. (Annual Revenue / 365 days).

Let’s see what happens to cash flow when Medical Supplies XYZ reduces collection time from 45 to 40 days:

(Average dates outstanding — desirable number of days outstanding) x daily cost of accounts receivables =  (45-40) x $13,698 = $68,490

By improving collections by just 5 days, Medical Supplies XYZ can provide an additional $68,490 to working capital.

In an environment where cash flow and access to credit are top concerns for SME growth (Scottish Pacific SME Growth Index, March 2017), SMEs should look within their business for ways to release cash that is currently locked away. As one ezyCollect customer reports, automation to improve collection times is not only improving working capital, it’s reducing reliance on credit facilities, and it’s saving time.

To see how ezyCollect can improve your cash flow, schedule a demo today.