Freedom Day & Christmas a ‘perfect storm’ of trouble for retailers & suppliers
As Victoria follows NSW in its own “Freedom Day”, SME lending fintech Tradeplus24 is warning that many Australian retail and supplier businesses will be unable to meet the rush of demand – especially after months and years of damaged cash flow.
Tradeplus24 believes there is a ‘perfect storm’ about to hit retail & supplier businesses caused by pent up demand from lockdowns combined with the predictable mad rush of pre-Christmas spending, needing to be serviced by disrupted supply chains and interrupted cash flow.
Even businesses that performed well during COVID-19 are likely to experience significant logistical and cash flow challenges over the coming months, warns Tradeplus24.
Adam Lane, MD of Tradeplus24 Australia, said, “The maths is pretty simple. If a $10 million (yearly revenue) business experiences as little as a 20 percent increase in demand under normal circumstances, they would need to have up to $1 million of liquid assets on their balance sheet to service this demand
“But if this same $10 million business has also experienced a 50 percent reduction in revenue for the 12 months prior due to lockdowns, like many businesses have, then the probability of having the required level of liquid assets is materially reduced.
“With access to a line of credit at an annual interest rate of 7 percent, like what Tradeplus24 offers, this business could meet increased demand of up to 50 percent – even if it had just experienced 12 months of halved revenue.
“But if funding was to cost three times as much at 21 percent – what many predatory SME lenders charge – then they would struggle to meet the new demand and the interest payments on the loan.
“Even worse, without any access to any funding, they will be effectively giving business to their competitors and slowing the rate upon which they can get back to pre-COVID trading levels.”
The demand/supply mismatch often hits businesses that rely on invoices the hardest, due to the longer lead time for payment. These businesses typically operate behind the scenes, like manufacturers, wholesalers, and courier companies.
But when these businesses fail to meet demand, the retailers that rely on them for their products, services, and distribution fail to meet demand also – including the coffee shops, bars, gyms, and hairdressers that are currently being overwhelmed with demand.
Lane continued, “Consider a restaurant you’re keen to book a table at. There could be up to 20 wholesalers, manufacturers, and delivery business involved in your steak and chips with a beer.
“If the meat wholesaler doesn’t have the free cashflow to be able to purchase the meat before invoicing the restaurant, it makes for a very different meal – a vegetarian one no doubt!”
