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One of the best ways for brokers to provide value-add for their SME clients at this time of year is to keep an eye out for any clients under cash flow pressure and be ready to suggest funding solutions to alleviate these concerns.
January and February are typically the crunch months for Australian SMEs, which each year face post-Christmas cashflow challenges.
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With the pre-Christmas rush behind them, business owners return to find many customers still on leave, and getting invoices paid becomes even more difficult than normal.
It can be a time of worry, as retailers are relying on good Christmas and New Year sales to bolster their cash flow and determine how quickly their suppliers will get paid.
Here are some of the issues brokers can look out for amongst their clients:
• Exceeding borrowing limits
• Strained relationship with bank manager
• PAYG/super not being paid on time – arrears building
• Payables increasing – balances in 60/90 days increasing
• Stock levels increasing/evidence of obsolete stock
If you have identified these issues within a client business, there are a number of ways that brokers can assist:
• Offer these clients a credit 'health check' to open up the opportunities available to them
• Check whether the client has sufficient credit available. Any bank overdraft may be limited by the value of security available rather than what the business actually needs. Help them identify whether extra credit is required
• Are the client's business borrowings structured properly? Check that they are not using working capital facilities such as overdraft or debtor finance to purchase capital assets, or capital assets as security for overdrafts
Asset-based lenders, such as debtor finance companies, work with many brokers who look to help their clients overcome cash flow concerns. Specialists in this area understand small businesses and are usually able to be more flexible and creative in solving cash flow problems.
Debtor finance allows SMEs access to working capital that would otherwise be tied up in receivables for 30 or 60 days or more.
Over the past 25 years, debtor finance has become a mainstream funding option for SMEs in the UK, the US and Australia. There are more than 4,500 Australian SMEs, with combined annual revenues of $65 billion, using debtor finance.
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