Prushka Fast Debt Recovery has released their latest report, ‘Canary in the Coal Mine,’ which shows that although Australian small businesses remain confident despite economic uncertainty, growth plans are diminishing.
The bi-annual survey found business sentiment is high, with 64 per cent of SME owners confident about the current position of their business.
However, there was close to a 15 per cent decline in the last six months in the number of SMEs planning for growth; falling from 55 per cent to 47 per cent.
Almost half of respondents believe profitability (43 per cent) and growing their customer base (40 per cent) are of most concern in the next 12 months, and 46 per cent said the state of the economy had a negative impact on their business processes in the past 12 months.
Roger Mendelson, CEO of Prushka, said results from the survey of 559 small business operators indicates Aussie SMEs remain confident but are realistic about the challenges they are facing with low projected economic growth and declining consumer spending.
SME owners are carefully considering all business processes and keeping risk at bay – Prushka believes small businesses are handling credit and collections functions better than any time in its 43-year history.
“Our clients are listening to the advice we give and are using proper credit checking processes, business trading terms and good debt collection steps,” Mr Mendelson said.
“The fact our survey revealed only 11 per cent of respondents have no business confidence, contradicts the extended period of negative commentary around the Australian economy and the relatively low projected economic growth by the OECD of 1.7 per cent. This is quite an outstanding result.”
However, SMEs continue to be hit hard with declining consumer spending.
The latest report revealed an increase of nearly 25 per cent in the amount of small businesses that believe consumer spending has negatively affected their business – more than 1 in 3 SMEs are now feeling the pinch of tightening household budgets.
“It’s encouraging to see SMEs remaining confident with economic challenges they face – particularly when we know they are juggling the challenge of generating profit whilst managing cash-flow,” Mr Mendelson said.
Nearly half of respondents (44 per cent) think debtor’s repayment ability has become harder in the past six months, compared to 38 per cent in the last survey. Mr Mendelson believes this links back to the increase in SME worry of lowering consumer spending.
Businesses are continuing to manage their own fund wells, with a 14 per cent increase in the last twelve months of respondents with a cash buffer in place to manage cash flow problems. There was also a 7 per cent increase in businesses using personal funds to temporarily cover cash shortages.
The building and construction industry has again been named the longest to pay invoices, a now two-year trend, with almost a quarter of respondents noting a delay in payment.
“This worrying trend is a cause for concern as building and construction plays such a key role in the economy due to the flow-on effect on other businesses. In this industry, there tends to be a small number of high quantum invoices, so a blow-out in payment times impacts the ability of the supply to pay its own creditors.”
The report also reveals SMEs are continuing to employ good collection systems through implementing tight credit assessing criteria, with 83 per cent of respondents spending 10 hours or less a month recovering unpaid debts.
“We’re seeing SMEs continue to improve their internal credit and debt collection processes. Businesses are less inclined to advance credit without enforcing basic credit assessment processes and keeping a tight rein on outstanding debt.”
“The fact that over half of SMEs wait more than 90 days before referring debt to a collection agency increases the risk of debts going unrecovered. The longer SMEs wait, the higher the risk is of bad debt, so it’s important for SMEs to not worry about upsetting their customers and refer debts sooner.”
For further insights, read Prushka’s Canary in the Coal Mine report here.
