In a recent study, cloud accounting firm Xero has found that almost half of small businesses in Australia are currently operating in the red.
The findings, which were published by Xero in the first ever edition of their Small Business Insights report, showed that only 50.7 percent of small businesses were cash flow positive as of June 2017. The rest operated with barely enough revenue to cover their expenses.
Cash Flow Issues
Further analysis of the data revealed late payments as one of the causes of this phenomenon. Outstanding invoices have effectively limited SME working capital even before the end of the fiscal year.
In an interview with The Australian, Xero Australia managing director Trent Innes reflected on the findings of their report.
“Cash flow is vital to any business, but especially small businesses. Until now, it’s been difficult to know exactly how many small businesses are unprofitable,” he said. “Just half of small businesses had positive cash flow in June this year, meaning the other half were in the red. That is a slight improvement of 3.6 per cent year-on-year, so we’re heading in the right direction.”
However, it’s still alarming that a rather large number of small businesses were in the red. Mr. Innes notes that cash flow issues usually stem from overdue invoices. Many small businesses in Australia were not getting paid on time for the services they were providing.
In fact, Xero’s report found that it took an average of 36.2 days for a small business invoice to get paid in June 2017. This discovery comes from an analysis of aggregated data from Xero’s 500,000 subscribers in Australia.
The considerable delay between SMEs issuing Invoices and having them paid must be rectified to allow them to operate effectively. Understandably, Mr. Innes shares the same view.
“Small businesses are the lifeblood of our economy — they contribute a fifth of our country’s GDP and employ more than 40 per cent of the workforce. It’s vital that we do what we can to ensure their survival,” he said. “Policy and regulation is most effective when based on timely, accurate data and we can finally provide exactly that, showing how small businesses are performing every month.”
How SMEs can Avoid this Issue
Indeed, knowing where your business stands financially is crucial not only to your company’s survival and success. Part of this is keeping track of your invoices and making sure you get paid on time. This is where Slater Byrne Recoveries comes in.
We can help you successfully collect on overdue debts and invoices to improve your business cash flow. Call us today at 1300 794 290 for a free consultation!