Small businesses grapple with cashflow issues as larger business struggle with credit access: CreditorWatch research

Australian small businesses are increasingly dissatisfied with their current levels of working capital, according to newly released findings from credit reporting bureau, CreditorWatch’s Business Sentiment Survey.

The results reveal a stark contrast between businesses, with almost nine of out 10 large business (88%) ‘very satisfied’ or ‘somewhat satisfied’ with their current level of working capital, compared to just over half of small businesses (61%).

CreditorWatch’s July Business Risk Index underscores the financial strain businesses are facing. While B2B payment defaults – a leading indicator of future business failure – dipped in June, they surged in July and are now up 42% year-on-year. The average value of invoices held by businesses continues to remain flat – dropping 51.5% over the year to July 2024, indicating that businesses are ordering significantly less from suppliers as consumer demand falls away.

Small businesses dissatisfied with cashflow

The survey highlights a significant disparity between large and small businesses regarding satisfaction around current levels of working capital. While 88% of large businesses and 84% of medium size businesses were ‘very satisfied’ or ‘somewhat satisfied’ with their cash flow, only 61% of small businesses shared this sentiment. Meanwhile 58% of sole traders and 64% of businesses with 19 employees or less were ‘satisfied’ – placing them in a similar league to small businesses.

of these businesses said they were ‘dissatisfied’ or ‘very dissatisfied’ compared to 24% in the Financial and Insurance sector, 25% in Business Services, and 28% in Retail and Hospitality. Sectors such as Health and Education, as well as Business Services said they were ‘somewhat satisfied’ at 51%, while Production came in the lowest at 43%.

Larger businesses struggling the most with access to credit

In terms of accessing finance, larger businesses are those finding it hardest to access credit. Nearly three quarters of large businesses (74%) have ‘regularly’ or ‘occasionally’ experienced challenges accessing credit, compared to medium businesses (67%) and small businesses (43%). Just 11 per cent of sole traders say they ‘regularly’ have trouble accessing credit compared to 44% of large businesses. The data also reveals that companies that have been in operation for 5-10 years (62%) find it more challenging to access finance than those operating for less than five years (50%).

The top four overall greatest challenges keeping business owners and decision makers up at night consisted of ‘maintaining/improving profitability’ (42%), ‘managing cashflow during lean periods’ (37%), ‘maintaining/improving my work-life balance’ (29%), and ‘competing with other businesses’ (28%).

For large businesses, ‘profitability’ (36%) was the top concern. Followed closely by ‘motivating employees to be more productive’ (32%) and ‘retaining skilled employees’ (30%). Large businesses also noted ‘keeping up with technology advancements’ (29%) as a significant concern. Meanwhile, small businesses rated the three top themes more highly than their counterparts – ‘maintaining/ improving profitability’ (45%), ‘managing cash flow during lean periods’ (42%) and ‘maintaining work life balance’ (31%), with the latter highlighting the mental strain many small business leaders face in this current climate. 

Strategies to Improve Cashflow

In response to these challenges, businesses are implementing a range of strategies. 39% of businesses plan to increase prices and 30% aim to reduce non-essential expenses over the next 12 months in order to protect their businesses through trade headwinds.

Larger businesses said they would ‘invest in technology’ (37%) to enhance efficiency gains such as automation, versus 22% of medium businesses and 12% of small businesses.

Other tactics to navigate economic challenges ahead include switching to lower cost suppliers (21% overall (26% of large businesses, 23% of medium businesses and 19% of small businesses)). While 10% of businesses overall were delaying supplier payments. Interestingly, when broken out by business size the use of this tactic varied significantly, with 19% of large businesses, 12% of medium businesses and 7% of small businesses planning to delay supplier payments.

The impact on staff is also evident, only 4% of small businesses had laid off staff compared to 12% of medium businesses and 11% of large businesses. Furthermore, 14% of medium businesses were reducing pay/bonuses for staff, compared to 12% of large businesses and 7% of small businesses. 

CreditorWatch CEO, Patrick Coghlan, says the results highlight the unexpected challenges faced by businesses of all sizes.

“It is assumed that smaller businesses are the ones struggling to get access to credit. However, the results reveal that it is larger businesses that are finding it difficult. This could be because they typically seek credit from banks, which have tighter lending standards than tier-two lenders,” Coghlan said.

“The survey also shows that while large businesses face credit access challenges, small businesses are grappling the most with cashflow challenges. Both groups are implementing strategies like increasing prices and reducing non-essential expenses to manage these issues, but larger businesses are more focused on investing in technology to drive efficiency gains. These findings underscore the diverse financial pressures across the business landscape and the importance of tailored strategies to navigate these challenges.”

For businesses looking to strengthen their cashflow management, CreditorWatch’s ‘Master your collections process and increase cash flow’ webinar is now available on demand here.