SMEs leaning to alternative financing as cashflow crisis worsens


Data suggests that there has been a surge in the number of Australian small businesses that are ditching traditional bank loans in favour of alternative financing options as means to generate cashflow amid an unprecedented cost of living crisis.

This is the conclusion reached based of the data released by financial solutions company OptiPay, which noted a record number of enquries it received in the last quarter.

“We’ve seen a 200 per cent increase in enquiry over the last quarter from businesses who are looking to strengthen their cashflow in these challenging economic conditions,” OptiPay CEO, Angus Sedgwick, said. “Compared to the same time last year our new client intake has doubled with most interest coming from the labour hire, manufacturing, transportation and logistics, wholesale trade and agriculture industries.”

However, Sedgwick also pointed out that they are also seeing an increase in companies seeking help with their cashflow management strategy too late.

“On average, we’re declining two out of every five new enquiries we’ve had over the last few months,” he warned. “It is very important that business owners make plans and take actions to address their cashflow issues before creditors, whether they be the ATO or their suppliers, take recovery action against the business because if the ATO or suppliers have lodged tax or payment defaults on the business with credit reporting agencies it will make it very difficult to obtain finance. Businesses need to proactively engage with the ATO to enter into a payment plan to reduce the risk of their application being denied.”

A related report by the Australian Securities and Investment Commission found that the number of Australian businesses declaring insolvency has doubled since the start of the year according to the with 1136 recorded March, an increase from the 968 recorded in February and 555 in January. Insolvencies also increased by 37 per cent from the same month a year earlier.

“The best type of business for us to take on is a growing one,” Sedgwick said. “They’re running efficiently, they’ve got good cashflow and they’re making strong sales, but because of the growth, they experience a mismatch in the timing of revenue and expenditure” said Sedgwick.

In response to the ongoing cashflow crisis, a growing number of Australian businesses have turned to invoice financing to manage their cashflow cycle, where they receive an advance on the money owed from their outstanding invoices to unlock the cash tied up in their accounts receivable ledger. OptiPay has noted that invoice financing remains an untapped market in Australia with 65,000 B2B businesses eligible for the cashflow solution, but only an estimated 4000 currently utilise it.

“It [invoice financing] allows business owners to be very accurate with their cashflow and budgeting because if they have invoice financing, they know when they deliver on their sales they can receive up to 90 per cent of that in cash immediately, allowing them to plan for growth,” Sedgwick concluded.