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Cash flow and inventory basics

SMBs battle rising bad debt claims

Business confidence is being further battered thanks to a 40 percent rise in business-to-business bad debt claims and increasing payment terms, leading experts to urge SMBs to better manage their cashflow.

According to Oxford Funding Head of Debtor Finance Rob Lamers, statistics released by National Credit Insurance (Brokers) show that claims received in July 2011 were 40 percent higher than the average for the same period between 2004 and 2010.

The industries that suffered most, recording both the highest number and value of bad debt claims, were electrical with 21 claims in July 2011 worth more than $2.4 million, building/hardware with 20 claims worth almost $1.1 million, and steel with 9 claims amounting to almost $0.80 million.

“The statistics show that there are a growing number of organisations defaulting on their business-to-business payments. That will have a follow-on effect for other businesses if not nipped in the bud,” Lamers said.

Lamers said these figures, along with those from a recent Dun & Bradstreet report demonstrating that almost two-thirds of businesses take more than the standard 30-day period to settle their accounts, indicate small businesses are struggling.

“Economic troubles in the USA and Europe, soft consumer demand and a high Australian dollar has seen business confidence in Australia decline. With many businesses forced to wait over three months for much needed cash, there is even more pressure on businesses to stay cash flow positive.”

“Talk to your business adviser or accountant about how you can improve your cash flow. Products such as debtor finance may help get your cash flow back on track.”

CreditorWatch managing director Colin Porter suggests businesses act more cautiously about extending credit.

“Too often businesses are interested in the sale and they don’t stop to check whether a customer is a suitable debtor. Credit checks should be the number one defense against bad debts.”

Porter also emphasises the importance of monitoring debtors, even after extending credit.

“The business environment changes all the time. Anything from an interest rate change to fallouts in the US economy can affect businesses, so creditors need to make sure that current conditions don’t affect their debtors’ ability to pay.”