Small to Medium Businesses Pessimistic about Cash Flows

Shirley Liu 15 May 2015

bearish-marketFindings from March 2015 Bibby Barometer Survey show small to medium businesses losing confidence.

Research conducted by Bibby Financial Services show that 40% of small and medium size enterprises (SME) surveyed are finding it difficult to manager their cash flows compared to a year ago. Businesses are spending more time chasing up invoices with an increasing number of customers who consistently pay late.

Marc Cleaver, Managing Director of Bibby Financial Services Australia and New Zealand has warned the Australian Government that the statistics are 'deeply concerning'.

“Businesses are not convinced that government policy initiatives introduced in the past 12 months have helped. Fewer than half the businesses surveyed think that these policy initiatives have helped them to grow (43%) or provided them with confidence in their future (49%),” Mr. Cleaver said.

“The Federal Government needs to take note of this. SMEs don’t feel particularly well supported and they don't feel that government policies have worked to create better or more flexible business conditions. Ahead of the May Federal Budget, the Government should be listening to SMEs to get a better understanding of their needs given their importance to Australia's growth,” Mr Cleaver said.

As a result of Government policy initiatives from the year before, less than half of the businesses surveyed said they had reduced their operating costs (43%), hired more staff (45%) or improved their access to finance (48%).

Summary of survey findings
  • 25% are forced to tackle cash flow concerns by ceasing trading with customers who consistently pay late
  • 23% are spending more time chasing up invoices
  • 19% offering discounts for early payments
  • 29% are now insured against the risk of bad debt, compared to 15% from last year
Bearish outlook for SME
  • Nearly half of those surveyed are concerned about current economic conditions
  • Cash flow concerns are expected to continue
  • Despite cash flow concerns, businesses are still borrowing funds to implement investment plans
Western Australia hit the hardest
  • Weakening mining sector has predicted to cause a decline in sales over the next year
  • Western Australian businesses most likely to be more concerned with economic conditions

Positive signs

Despite the overall bearish outlook, there has been an increase in the level of borrowing. About two-thirds of business intend to borrow to maintain business investments over the next year, while medium-sized enterprises most likely to increase borrowings.

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What are some ways you can help fix cash flow problems?

Here are some tips to help get your SME moving in the right direction:

  • Send out invoices as soon as possible. If your business functions on sending out invoices, they will need to be sent out promptly - as soon as you ship the products or complete a job.
  • Increase your prices steadily. Your prices may have been low when you started your businesses to attract clients or to remain competitive. If you have plenty of work coming in now, consider increasing your prices to cover more ongoing expenses. A general rule of thumb is to increase your prices after they've been steady for four to five years.
  • Find clients who will put you on a retainer. Your income may vary from month to mont, a great way to even out the irregularities is to find clients who are willing to offer a retainer. This will guarantee an amount of money per month.
What's a retainer?

A retainer is a fee paid in advance to someone to guarantee their services for use when required.

  • Consider asking your customers to use a credit card. Credit cards are great cash flow management tools. You can ask your client or customer to pay you with a credit card, instead of billing them. You may be charged a fee for this, but you'll need to consider the time and money you save from chasing up invoices. You can have your own business credit card and take advantage of the interest free days, given that you repay your whole balance every statement period.
  • Check your customer's credit rating. This is one of the best ways to avoid problems overall. Ensure that the client your dealing with is credit worthy and can pay for your services. The key is to catch these types of problems early to save you from a headache later.

The Bibby Barometer questions a range of businesses between 1 and 199 employees. Nearly half of the businesses employ between 20 to 1990 people.

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