The latest report from credit reporting bureau CreditorWatch’s Business Sentiment Survey revealed that a considerable number of Australian small businesses are increasingly dissatisfied with their current levels of working capital.
The report found that 61 per cent of small businesses were ‘very satisfied’ or ‘somewhat satisfied’ with their current level of working capital compared to an overwhelming 88 per cent of large businesses. Meanwhile, 58 per cent of sole traders and 64 per cent of businesses with 19 employees or less were ‘satisfied’.
Payment defaults and financing challenges bared
In addition, CreditorWatch’s July Business revealed that B2B payment defaults, a leading indicator of future business failure, surged in July and are now up 42 per cent year-on-year. The average value of invoices held by businesses continues to remain flat – dropping 51.5 per cent over the year to July 2024, indicating that businesses are ordering significantly less from suppliers as consumer demand declines.
As far as accessing finance is concerned, surprisingly, larger businesses are those finding it hardest to access credit, with 74 per cent saying they ‘regularly’ or ‘occasionally’ experienced challenges accessing credit, compared to medium businesses (67 per cent) and small businesses (43 per cent). Only 11 per cent of sole traders say they ‘regularly’ have trouble accessing credit compared to 44 per cent of large businesses. The data also reveals that companies that have been in operation for 5-10 years (62 per cent) find it more challenging to access finance than those operating for less than five years (50 per cent).
Overall, business owners and decision-makers say they experience challenges in ‘maintaining/improving profitability’ (42 per cent), ‘managing cashflow during lean periods’ (37 per cent), ‘maintaining/improving my work-life balance’ (29 per cent), and ‘competing with other businesses’ (28 per cent).
Strategies to improve cashflow
In response to these challenges, 39 per cent of businesses plan to increase prices and 30 per cent aim to reduce non-essential expenses over the next 12 months in order to protect their businesses through trade headwinds.
Other strategies shared by the respondents include switching to lower-cost suppliers (21 per cent) and delaying supplier payments (10 per cent). Staff lay-offs are also in consideration, with four per cent of small businesses having laid off staff compared to 12 per cent of medium businesses and 11 per cent of large businesses. Furthermore, 14 per cent of medium businesses were reducing pay/bonuses for staff, compared to 12 per cent of large businesses and 7 per cent of small businesses.
CreditorWatch’s CEO, Patrick Coghlan, noted that the results highlight the unexpected challenges faced by businesses of all sizes.
He said, “It is assumed that smaller businesses are the ones struggling to get access to credit,” said Cochlan. “However, the results reveal that it is larger businesses that are finding it difficult. This could be because they typically seek credit from banks, which have tighter lending standards than tier-two lenders.”
Coghlan added, “The survey also shows that while large businesses face credit access challenges, small businesses are grappling the most with cashflow challenges. Both groups are implementing strategies like increasing prices and reducing non-essential expenses to manage these issues, but larger businesses are more focused on investing in technology to drive efficiency gains. These findings underscore the diverse financial pressures across the business landscape and the importance of tailored strategies to navigate these challenges.”
