Staying liquid

WITH pressures on SMEs growing daily as major lenders tighten credit criteria, Cash Flow Finance says businesses must try to avoid late payments.

Managing director Wayne Smith, says he has seen an increase in business failures and creditors taking longer to pay and using ‘disputes’ as a tactic to stall on payments with serious cash flow implications.

"As an example, a business turning over $5 million which has debtors taking an average of 50 days to pay will have a receivables ledger of $685,000. If those debtors took an extra 15 days to pay the ledger would increase to $893,000 which would create a hole in the working capital of $208,000." says Smith.

"A logical response might be to slow down on payments to creditors but that isn’t always possible and with payables ledgers typically being 30 per cent to 50 per cent lower than receivables, taking an extra 15 days credit off suppliers may only recoup around $125,000," he says.

Typical responses range from negotiating an increased credit line to running up unauthorised borrowings or arrears with the Australian Tax Office (ATO).