May 21, 2021 1:00 PM

a guide to SME cash flow finance solutions in australia

An unexpected event like the COVID-19 pandemic shows the need for businesses to maintain strong cash flow forecasting.

Poor cash flow is a factor in around 20% of small business failures in Australia annually. In 2020, businesses had to use their spare cash to stay afloat. The trend in 2021 is to use funds to cover several months of expenses putting pressure on an already stretched cashflow.

Managing cash flow with solutions like trade finance can make all the difference for your business. Here's our guide to what you need to know about some of the most common cash flow problems and how cash flow solutions for SMEs can help.

overcome cash flow obstacles

Most small businesses face ebbs and flows in their cash balances, as sales and invoices come in at different times. But if you're prepared, you can solve common issues and free up some cash.

overdue payments

One of the biggest causes of negative cash flow for small businesses is customers not paying their invoices on time.

Improve the turnaround between payments coming in and bills going out by issuing invoices to customers with 30-day payment terms. Offering discounts is one way to encourage customers to pay early. At the same time, negotiating a 45-60 day payment schedule with suppliers can help cover costs with the money coming in.

high expenses

High overhead costs like rent, utilities, and equipment can eat into cash flow fast. Keep track of overheads with regular audits. Cutting back on non-essential expenses releases cash flow for more efficient uses.

excess inventory

Routinely having unsold stock sitting idle ties up cash. Itcan be a symptom of inadequate sales projections. Consider offering sale discounts to recover some of the cash and avoid writing off the stock. Then look at ways to improve sales forecasting to avoid stock building up in the future.

Selling or renting out equipment or property that would otherwise be unused is another way to bring in extra cash.

tight profit margins

As a small business owner, it can be tempting to sell products and services at low prices. That is especially the case when you're just getting started and trying to get a foot in the door of your industry.

But if prices are too low they will not be enough to cover costs, let alone generate profits. You can increase profits by raising prices for products that have low margins. Review prices regularly to make sure that your prices cover the cost of selling your products.

what cash flow finance solutions are accessible for SMEs

If you need help to cover basic costs while you build upsales, there are several ways that small businesses can secure cash flow finance. You can opt for a one-off cash injection from a term loan, or an ongoing debt facility like an overdraft. Here some of the options.


Trade Finance

One way to defer payment to suppliers and reduce the risk of customer non-payment is to secure trade finance. This is effectively a line of credit for international trade. It can help you convert stock into cash before you need to repay the loan. It also gives you access to competitive exchange rates.


Secured Term Loan

You can borrow against the value of the commercial or personal residential property you own. This can help raise cash for equipment purchases, acquisitions, or debt consolidation. A secured term loan uses the property as collateral, so there is the risk it can be repossessed if you fail to make the repayment.


Unsecured Business Loan

If you have an urgent need for cash, you may be eligible for an unsecured loan. Unlike a secured loan you don't need to put up any business or personal assets as collateral and generally funding is a lot quicker. Keep in mind unsecured loans usually have higher interest rates than secured loans.


Overdraft/Line of Credit

An overdraft or line of credit can give you access to cashflow in the form of an ongoing loan at a fixed interest rate. You can arrange an overdraft for your business bank account. A line of credit is secured against an asset like property.


Debtor Finance

Also known as invoice financing, debtor finance allows you to unlock the cash from unpaid invoices. The lender buys the invoices for around 80-85% of the value, making the cash available straight away. The lender then receives the payment from the creditor.


Equipment Finance

If you need to buy or lease equipment for the business, you can secure equipment financing. That way you can stay within your cash flow budget while getting the assets you need to grow. You can also borrow funds against your existing plant and equipment.


Credit Card

A business credit card account can provide a short-term way of managing cash flow for purchases. Credit cards carry higher interest rates than other cash flow finance solutions, so they are better as a short-term fix.They have other benefits like cash back and points, multiple cardholders, andeasy repayment.


Debt Refinancing

If the business has existing loans or cash advances with high interest rates, the repayments can drain revenues fast. Debt consolidation allows you to refinance the loans and free up cash with smaller repayments.


find the right cash flow finance solution

It is vital to be realistic about how much cash flow the business needs and your ability to keep up with loan repayments. You should also start allocating revenues on a regular basis to build a cash reserve for the future.

With so many options for cash flow finance, take the time to decide what will work best for your business. You might be able to use a combination to free up your cash.

Moneytech can help you choose the right cash flow solution for your business, from trade finance to equipment leasing. Contact us today to learn how.


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*This information does not take into account your personal objectives, circumstances or needs. Consider its appropriateness to these factors before acting on it. Read the disclosure documents for your selected product or service before deciding whether to purchase them. ABN: 24611393554