The government’s $130 billion JobKeeper Payment scheme was initially greeted with a sigh of relief by many businesses who are struggling with paying staff wages as part of the financial challenges caused by coronavirus (COVID-19). However, the initial relief has turned to worry, as cashflow becomes an issue as businesses struggle to pay their eligible employees a salary.
The JobKeeper scheme supports businesses significantly affected by the coronavirus to help keep more Australians in jobs. It is open to eligible employers, sole traders and other entities to enable them to pay their eligible employee’s salary or wages of at least $1,500 (before tax) per fortnight.
As a financial support to businesses, JobKeeper will assist in keeping many businesses, particularly small and medium size businesses, in business.
Currently, more than 900,000 Australian businesses have registered their interest in accessing JobKeeper payments and 500,000 businesses had already filled in formal applications for the scheme[1].
However, whilst this is a lifeline, the scheme will create major cash flow issues for some businesses, particularly those that are earning no income and waiting for applications to be reviewed and approved.
Why?
As employers need to pay all eligible employees a minimum of $1,500 (before tax) per fortnight to claim the JobKeeper payment, the scheme is causing many small businesses further financial strain.
JobKeeper is \paid to the employer in arrears each month by the government. The first payments to eligible employers will commence in the first week of May 2020.
JobKeeper payments can be made for the period beginning 30 March 2020. This means a business has to have the finances to be able to pay their staff in advance of being reimbursed, creating a situation where there’s a shortfall of cash flow for at least 30 days, a particularly challenging situation, especially if the business has no income.
While many businesses are turning to their banks for short term loans to finance the shortfall, Leo Tyndall, CEO and Founder of MarketLend, a finance and investment marketplace, suggests supplier finance could be the answer. Tyndall has developed a new payment gateway offering, called UnLock, which can extend supplier terms from 30, 60 to 90 days, freeing up a businesses’ cash flow to be redirected towards staff wages instead of paying supplier and agency invoices and commercial rent. He suggests it is a great alternative to a business taking out more debt.
“UnLock is a business-to-business (B2B) buy now pay later method that enables small and medium sized businesses to improve their working capital to have financial flexibility as needed in the current operating environment. UnLock extends payment terms on invoice and suppliers are paid upfront in return for a fee. Businesses can use UnLock funds, starting from $50,000, immediately rather than dipping into their accounts before sales are acquired. By creating cash flow, paying suppliers and transferring the risk to ourselves, UnLock enables businesses to have more financial flexibility, particularly during this unpredictable time,” says Tyndall.
“The JobKeeper payments are paid out as a reimbursement. That means, in order to be eligible to claim, employers must have already paid out employees’ wages from March 30 to the time they receive the payment. For some employers this means they will have to cover at least five weeks’ worth of payroll before being reimbursed. This presents cash flow difficulties for many businesses. Businesses have an option of taking out a loan, which includes an overdraft, or looking at other options such as UnLock.”
After decades of working in global legal and financial services, Tyndall says he has seen businesses burned too many times by unethical lending. While large-scale businesses had any number of sophisticated finance options available to them, the small and medium-sized business space was largely ignored.
“The JobKeeper initiative is a great help for businesses who want to retain staff. If cash flow is managed well with a working capital solution, the business will have the flexibility to keep suppliers paid with the same payment terms and pay their staff wages,” says Tyndall.
Reference
[1] https://www.abc.net.au/news/2020-04-29/businesses-not-signed-up-jobkeeper-payments-coronavirus/12193698
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