The Reserve Bank’s decision to keep the cash rate at 4.35% offers relief to SMEs battling inflation and rising living costs, as stable interest rates are vital for their financial health in these challenging times.
Moneytech CEO Nick McGrath (pictured above) recognises the remarkable resilience of Australian small business owners.
“SMEs have been really copping it on all fronts but generally holding up well,” McGrath said. “Over the past 12 months, they’ve had to deal with inflation, and supply chain issues, while interest rate increases have impacted their business lending and home loans.”
McGrath highlighted cash flow, especially impacted by delayed payments from debtors, as a significant challenge for businesses in 2024. Both SME business owners and consumer borrowers are increasingly relying on the non-bank lending sector to address cash flow deficiencies.
“Debtor payment periods are just one of these storms impacting business at the moment, with debtor payment days blowing out at the big and small ends of town,” said McGrath. “30- to 60-day invoice terms are dragging out to anywhere between 90 and 120 days. That’s a lot of time for SMEs to wait to get their money after delivering goods or services.”
Beyond merely serving as a cash stopgap, finance facilities offer SMEs the opportunity for strategic financial management.
McGrath advised businesses to use finance to negotiate better terms with suppliers, suggesting that immediate or short-term payments can secure discounts, thereby improving an SME’s bottom line.
“SMEs are paying their own suppliers in 30-, 60-, or 90-day terms, if you pay cash on delivery or a 14-day term, often a supplier will give business owners a discount of anywhere between 3% to 5% of the cost of goods sold,” he said. “The discount generally far outweighs the cost of finance, so make sure any capital from finance is put to good work.”
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
