Why now is the time for small-business owners to improve cashflow and fast-track payments if they want to be ready to grow in 2024.
Australian small businesses have had it tough in the last few years, and they now face the challenges of stubborn inflation, rising interest rates, tightening consumer budgets and heightened operating costs. Despite these headwinds, this resilient small-business community still has plenty of positive opportunities for growth ahead of it. And taking proactive steps to boost cashflow and fast-track their payments is the first step small businesses can take to set themselves up for such success in the year ahead.
Factors such as high inflation and rising interest rates can have a negative influence on sales volumes and create ongoing cashflow challenges, ultimately impacting financial stability. In fact, recent research from The Council of Small Business Organisations Australia (COSBOA) found that about 43 per cent of small-business owners are failing to make a profit, and that three-quarters of them take home less than the average wage, demonstrating just how tough the current landscape is.
Fortunately, it’s not all doom and gloom for the small-business community. Xero’s recent Small Business Index (XSBI) showed us how resilient Aussie small businesses have been in the face of economic headwinds, with sales growth in the sector in this country outperforming New Zealand, the UK, the US and Canada, despite a slowdown in sales and overall performance. While it’s promising to see the sector weathering the storm, we know this won’t be the case for all – and challenges will likely remain for some time.
Faster payment times: The key to improving cashflow
Small businesses make up over 97 per cent of all businesses in Australia – they are the lifeblood of our economy. So, how can they manage the chaos of the current economic environment? It all comes down to implementing the digital tools and processes that will support not only their survival, but their success. Two key factors that go hand in hand here are cashflow and payments. By taking simple steps, such as making it as easy as possible for customers to settle their accounts and seeking the support of a trusted adviser, small businesses can free up valuable time that’s better spent future-proofing their business and improving cashflow management.
“Creating more ways for suppliers and customers to pay a small business is a winning strategy.”
Any small-business owner you talk to will attest to the fact that late payments are one of the main contributing factors to cashflow stress. Xero’s latest XSBI data found that small businesses are waiting 23 days to be paid, and that payments are made on average 6.5 days late. This has a huge flow-on effect to wider business operations, impacting everything from productivity to paying wages and investing in future growth. So, where can a solution be found?
Bigger businesses certainly have a key role to play in improving payment times, with recent Payment Times Reporting Scheme data analysis from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) finding that nearly a quarter of larger enterprises take more than 120 days to pay their small-business customers. While there is still a long way to go to implement a change for the better in this area, current action being taken by the federal government is a step in the right direction. The recent independent review of the Payment Times Reporting Scheme recognised that payment times are an ongoing problem for small businesses, and it’s encouraging to see that the government is considering the report’s recommendations.
In the meantime, we want to empower small-business owners with the tools that will enable them to take proactive steps toward getting paid faster. Adopting online invoice payment options is an effective first step to minimising and counteracting cashflow concerns. eInvoicing, which allows businesses to send and receive invoices directly between accounting systems (eliminating the need for manual, error-prone PDFs sent via email), is more efficient, accurate, and secure than traditional invoicing. Better yet, it makes it easier for customers and suppliers to pay, ultimately facilitating faster payment times and boosting cashflow reserves.
Creating more ways for suppliers and customers to pay is another winning strategy. By accepting online payments by credit card, debit card or direct debit straight from an invoice, businesses allow customers to pay using their preferred method, increasing the likelihood that they will settle those invoices on time. Adding a click-to-pay or “Pay Now” button to invoices makes this process even quicker and more efficient.
Beyond payments: Strategies to improve cashflow stress in the new year
If they’re yet to do so, small businesses should consider engaging a trusted adviser to provide expert guidance on their financial operations. More and more, we’re seeing that advisers are no longer just playing the role of ‘the numbers people’. They now wear multiple hats, having the expertise to tackle large-scale issues and show their clients the way when it comes to innovating, adopting new technology and redesigning their day-to-day processes.
We also strongly encourage small businesses to make the most of government incentives and tax breaks, which can provide a much-needed boost to cash reserves. For example, last year the government announced a new ‘technology investment and skills and training boost’ to allow businesses with an annual turnover of less than $50 million to claim a 120 per cent tax deduction for skills training and digital uptake between 29 March 2022 and 30 June 2023. This is where advisers can also play a key role – ensuring businesses are accessing all of the incentives and initiatives available to them.
Lastly, small businesses should ensure they are using cloud technology to its full potential. Cloud-based apps and tools can provide businesses with a clearer picture of their cashflow and overall performance, uncovering new avenues for growth, all while simplifying manual processes, enhancing efficiencies and giving business owners more time to concentrate on their business rather than being stuck in the daily grind of being ‘in their business’. Small businesses that are able to take actionable steps to improve their cashflow, encourage faster payment of the invoices they issue, and get their finances in check will give themselves the best chance of starting the year off strong, giving themselves more time to do what counts in 2024.
This article first appeared in issue 43 of the Inside Small Business quarterly magazine
