Does the ‘Big 4’ residential property rate rise signal rate rises across the board and how important is this for your businesses working capital solution? How else can you optimise your working capital?


“Setting your business up for success – optimising your working capital”


We’ve recently seen Westpac, followed by the rest of the big banks, and more recently some of the second tiers, increase interest rates on home loans and other residential lending by between 15 and 20 basis points. There is debate in the market as to 1) how this impacts the housing market, 2) what this means for the greater economy and 3) whether or not these residential interest rate rises lay the foundations for interest rate rises across the board.

Whilst residential property interest rates may not directly impact your business, it’s important to consider that interest rates in the property market tend to be the catalyst for rate rises across the board. Rates on commercial lending and other forms of finance often follow suit. After all, the big banks lend almost exclusively against bricks and mortar, even for business finance.

The majority of small to medium businesses require finance to grow, and whilst there are a variety of options available to businesses, most settle with a working capital solution such as an overdraft, line of credit, debtor/invoice financing facility. These facilities should operate in unison with your business as it grows. It is therefore crucial that as you borrow more for your growing business, you give careful consideration to all aspects of your working capital solution, particularly the interest rate.

Whilst the interest rates your financial provider are offering are crucial and should be afforded your attention, there are a number of other key strategies that business owners can use to optimise their working capital solution. These include:


Budget and Project Your Cashflow

All too often businesses don’t conduct accurate cash flow forecasts and are therefore caught out when revenue is down and expenses are up. Unfortunately months where revenue is down often coincide with months where payables and supplier payments are up as businesses must pay for stock they purchased during the busy period. You must know when you’re likely to experience these cash flow negative months.

It’s important to reconcile your actual expenses and income against your budgets and projections as often as possible. This is the best way o identify the months where you’ll need to have contingency plans in place.


Negotiate Extended Payment Terms with Suppliers

These days most local suppliers will offer trading terms provided you meet their credit criteria.Whilst they may not be willing to offer credit to you if you’re a new customer and/or you don’t meet these criteria, it never hurts to ask the question, and equally importantly to understand what you’d have to do to obtain terms with them.

Businesses can often free up working capital by seeking terms with their suppliers. Dunn and Bradstreet reported on the 15th of October 2015 in their “Trade Payments Analysis” that during the second quarter of 2015, average payment times in Australia were 49.2 days (see article at This means businesses in Australia are achieving roughly 7 weeks of credit from their suppliers which, for all small to medium businesses, can be the difference between a difficult month and a comfortable month.


Equip Your Business with a Working Capital Solutions

It’s always a good idea to consider a financing option that offers enough working capital to ensure there is sufficient cash in your business for the ‘worst case scenario’, and eases the cash-flow pains of growth. A general rule of thumb is that businesses should have liquid assets (cash, receivables etc) equal to three to six months of operating expenses. The best way to ensure your business has this much cash available is to establish a financing facility that provides this to you.


Two examples of finance solutions that aid your business in this regard are:

  • Trade Finance – a facility that offers you a line of credit that you can draw down on for the purchase of stock and inventory. It’s easy to keep costs associated with these facilities down because in the cash flow positive months there is no obligation to use the facility. Most of these facilities offer in excess of 90 day terms and therefore allow you to spread your expenses out over 3 months, maintaining the aforementioned cash balance in your business and smoothing out your working capital availability.
  • Debtor/Invoice Finance – a facility that lends you cash against your trade receivables. This facility is particularly well equipped at scaling funds lent against increased business activity. As your business succeeds and continues to sell, your receivables increase and your able to borrow more from your debtor finance provider. As your expenses will rise with increased sales this is a particularly efficient form of finance for a growing business. Many businesses have significant outstanding receivables and aren’t able to immediately access the cash from these receivables so a debtor finance facility is a great way to free up this working capital for your business.


Working capital is crucial for all SME’s as they strive to succeed, and there are a number of external factors that can influence success. Whilst we’re unable to control what our lenders and the RBA do with interest rates, there are other strategies that business owners and managers can employ to ensure their business has sufficient working capital.



Moneytech is an Australian commercial finance organisation specialising in Trade Finance (Credit Express) and Debtor Finance (Confirmed Capital). We aspire to become trusted partners of our customers. We support their growth by both understanding their business, and creating innovative financial products based on their feedback which fulfils their needs. Continue to our web site to learn more, or call us on 1300 858 904.