ScotPac CEO Jon Sutton warns business need to consider new ways to manage cash flow as supply chain finance begins to dry up and the end of JobKeeper looms.
Sutton suggests many businesses who rely on early payments for working capital need to know their options as early payment finance tightens and access to traditional finance continues to be difficult for many small business owners.
“It can be hard for many small businesses to access bank funding – perhaps they haven’t got enough trading history, or don’t have or don’t wish to use personal property to secure business funding,” Sutton said.
Over the past six months quite a few large businesses, including Rio Tinto and Telstra, have withdrawn from offering supply chain finance (SCF) programs. While the exit of a major supply chain finance business has added to the pressure.
Sutton says the impact is widespread, but small businesses in construction, labour-hire and transport are particularly feeling the brunt.
“If as a supplier you’ve gotten used to being paid early by your large customers, it’s not very appealing to be facing longer payment times of 90 to 120 days,” Sutton said.
Debtor finance an option to boost SMEs cashflow
Sutton suggests businesses looking for an alternative to supply chain finance could consider Debtor finance (also known as invoice finance). Debtor finance gives a business owner a revolving line of credit, secured against the total receivables of their business. This provides working capital that is available for them to draw on anytime they want.
“Whether they are wanting to fund new products, take on new clients, or stay on an even keel if customers are slow payers, business owners can use debtor finance to strengthen their ability to manage cash flow challenges,” Sutton said.
“It is a style of funding that’s been used by businesses for many decades and has been successful through all the ups and downs of the economy, from good times through to the GFC and recessions.”
The current tightening of supply chain finance opportunities comes at a time when many businesses are dealing with pandemic recovery and may be facing the end of JobKeeper on March 28.
“The timing means that the need to secure cash flow right now is more crucial than ever.”
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