A comprehensive survey of Australia’s small and mid-sized businesses has found owners and operators are increasingly turning to personal credit, loans from friends and family, and savings as a means of plugging cash flow gaps.
This is a key finding of the American Express Business Pulse Survey of more than 3,400 small and medium-sized enterprise (SME) owners and managers. According to the survey more than 70 percent of businesses are regularly forced to take stop gap measures to stave off cash flow shortfalls. These include accessing personal savings (44 percent); using charge and credit cards (36 percent); delaying payments to creditors (27 percent); and borrowing money, often from friends or family (23 percent).
“This major survey confirms many Australian businesses are squeezed between creditors and debtors and require help to plug cash flow gaps,” said Jason Fryer, the Head of Small Business Services at American Express.
“The survey findings reflect our experience during the GFC when there was a spike in SMEs turning to us for credit and charge card accounts,” Mr Fryer said. “Through the cards we were able to increase our lending to small business while the banks were cutting back on lending.”
Unfortunately, the survey found that too many operators (nearly 70 per cent) turn to their own personal credit to cover business expenses while waiting for payments to arrive from debtors.
“The credit card option is a very attractive one particularly as it can provide up to 51 days of interest free funding, but from a tax, financial and legal point of view, a business card is much more sensible,” Mr Fryer said.
He explained that with a business card debt is accrued against the business rather than being secured against personal assets.
“When it comes to tax reporting there is also a clear distinction between business and personal expenditure,” Mr Fryer said.
“A business card is designed for business use and offers benefits to the business. Blurring the lines between personal and business finances can be problematic.”
Rather than rely on your credit card to plug that cash flow gap, if your debtors aren’t paying you on time, sign up to CreditorWatch to expose bad debtors and be alerted when the businesses you trade with fail to pay.