A cashflow cure: How data can help streamline processes and minimise risk

Australia has a high volume of small businesses. According to ASIC, 96% of companies are, in fact, small businesses. Based on the Australian Bureau of Statistics figures, there are roughly 2.1 million small businesses across Australia and they employ half of Australia’s workforce. There are about 51,000 medium-sized businesses which account for 2.4% of entities.

Despite this volume, SMEs are also known for something else: most fail within four years of launching. In fact, 2,079,666 small businesses were operating in June 2013, and in June 2017, there were 1,332,242 — producing a 56% survival rate.

Small-business statistics are staggering. There are trends and reasoning behind the fact that SMEs struggle to make it past their fourth birthday. What if paying attention to the statistics and numbers could be the very thing that improves survival rates? If more SMEs were empowered by data, they could take innovative measures to improve and streamline their processes as well as mitigate risk.

SMEs have been under the impression that big data analytics is for larger companies only, due to the expense and skill required. However, this is no longer the case. Today, it is much easier to securely access data through online platforms which can interpret data in a way that the average person can understand.

To understand how SMEs would benefit from utilising data, let’s look at their common problem: cashflow. Cash is king in a successful business, and without it, a business is not successful. Research shows nearly half of SMEs have more than $20,000 in overdue invoices tying up their cashflow.

Two of the major issues that affect cashflow are late payments and extended payment terms.  

When it comes to getting paid, corporations are typically first in line. SMEs, however, are the last, and often the first to be defaulted on. Small business ombudsman Kate Carnell called this issue to attention in 2016 when the late payments were an average of 26.4 days late. But cashflow and late problems are still an ongoing issue. Only 51% of Australian small businesses were cashflow positive in June 2018 and the average time to get paid for an invoice with 30-day terms in June 2018 was 36.74.

The numbers show it is critical for SMEs to understand their customers and they need to be empowered to take matters into their own hands as the problem isn’t disappearing anytime soon. By performing due diligence on customers, SMEs can become aware of who they are dealing with and approve or reject credit terms accordingly. However, SMEs have had a difficult time accessing credit reports and risk information due to the expense of ordering one-off credit reports. Other issues surrounding due diligence include:

• Small-business owners wear many hats and might not be adept enough in accounting, finance or credit management skills;
• Business owners cannot afford a dedicated credit or accounts receivable manager;
• The majority of small business owners work six out of seven days of the week, meaning they may not have enough time and resources to perform constant due diligence;
• Small businesses might be too eager to gain new business and, therefore, might not perform the necessary due diligence on a new customer;
• Small businesses find it hard to demand payment within credit terms; and
• SMEs struggle to obtain the growth finance that they need due to high interest rates.

The rise of accessible data

In recent years, thanks to innovation and technology, data has become more accessible and critical to a business’ success. Data can provide the transparency that suppliers need to make informed decisions on payment terms and who they do business with. By engaging with technology, an SME can be empowered to address late and extended payment times.

Innovative, subscription-based platforms can assist SMEs to perform due diligence and make better, more-informed credit decisions, in an easy and timely manner. Platforms aggregates data from multiple sources, such as the Australian Securities and Investments Commission, the Australian Business Register, Australian Financial Security Authority, Australian courts, mercantile agents (debt collectors) and information captured from an extensive database of customers.

Before SMEs had access to these sorts of platforms, only large companies and the corporate sector could afford to utilise credit reporting bureaus. Now, SMEs have cost-effective access as well, enabling them to view early warning signs which help identify risky debtors.  

Capturing data is empowering the SME community. Every payment default can easily alert others who are in business or about to do business with the late paying debtor. Such data can help small businesses to adjust their payment terms or place customers on cash on delivery-type arrangements. It can also encourage creditors to remain vigilant and question customers when they begin to see warning signs.

Conclusion

While late payments and cashflow problems persist in Australia, the fact remains that SMEs make up 96% of Australia’s businesses. While most don’t reach their fourth birthday, SMEs can begin to change this by becoming empowered with data. While governments should be doing more to encourage upskilling, digital adoption and tighter regulations on late payments, SMEs have the power to take matters into their own hands.

There are ways to access affordable data and one does not have to be qualified to engage with it. At the click of a few buttons, creditors can easily perform due diligence no matter how time poor they are. This data is empowering not just themselves, but also the wider community of SMEs and corporations. The more data that is accessed and shared, the more innovative companies can become. Data continues to become more accessible and the type of data in which SMEs can access is only growing.

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