Australia has a high volume of small businesses. According to ASIC, 96% of companies are in fact, small businesses. Based on the Australian Bureau of Statistics figures, there are roughly 2.1 million small businesses across Australia and they employ half of Australia’s workforce.  There are about 51,000 medium sized businesses which accounts for 2.4 % of all entities.

Despite this volume, SMEs are also known for something else: most fail within four years of launching.  According to the latest ABS Counts of Australian Businesses, including Entries and Exits report, 2,079,666 small businesses were operating in June 2013 and by June 2017, there were 1,332,242 – producing a 56% survival rate.

The statistics around SMEs are staggering. There are trends and reasoning behind the fact that SMEs struggle to make it past their fourth birthday. What if paying attention to the statistics and numbers could be the very thing that improves survival rates? If more SMEs were empowered by data, they could take innovative measures to improve and streamline their processes as well as mitigate risk.

SMEs have been under the impression that big data analytics is for larger companies only, due to the expense and skill required. However, this is no longer the case. Today, it is much easier to securely access data through online platforms which can interpret data in a way that the average person can understand.

To understand how SMEs would benefit from utilising data, let’s look at their common problem: cash flow. Cash is king in a successful business and without it, a business is not successful. According the  ASBFEO Payment Times and Practices Inquiry report (April 2017), nearly half of SMEs have more than $20,000 in overdue invoices tying up their cash flow.

Two of the major issues that affect cash flow are late payments and extended payment terms. 

When it comes to getting paid, corporations (usually critical suppliers) are typically first in line. SMEs however are paid last, and are often the first to be defaulted on. Small Buisness Ombudsman Kate Carnell called this issue to attention in 2016 when the late payments were an average of 26.4 days late. However, the latest Small Business Insights Report from Xero shows that cash flow and late problems are still an ongoing issue. Only 51% of Australian small businesses were cash flow positive in June 2018 and the average time to get paid for an invoice with 30-day terms in June 2018 was 36.74.

The numbers show that it is critical for SMEs to understand their customers and they need to be empowered to take matters into their own hands as the problem isn’t disappearing anytime soon. By performing due diligence on customers, SMEs can become aware of who they are dealing with and approve/reject credit terms accordingly.  However, SMEs have had a difficult time accessing credit reports and risk information due to the expense of ordering one-off credit reports. Other issues surrounding due diligence include:

Small business owners wear many hats and might not be adept enough in accounting/finance/credit management skills

  • Business owners cannot afford a dedicated credit/accounts receivable manager
  • The majority of small business owners work 6 out of 7 days of the week.  They may not have enough time and resources to perform constant due diligence
  • Small businesses might be too eager to gain new business and therefore, might not perform the necessary due diligence on a new customer
  • Small businesses find it hard to demand payment within credit terms
  • SMEs struggle to obtain the growth finance that they need due to high interest rates

 

Solution: The rise of accessible data

In recent years, thanks to innovation and technology, data has become more accessible and critical to a business’s success. Data can provide the transparency that suppliers need to make informed decisions on payment terms and who they do business with. By engaging with technology, a SME can be empowered to address late and extended payment times. In fact, a recommendation made by the ASBFEO Payment Times and Practices Inquiry report (2017)  stated that governments should encourage the adoption of technology solutions to assist businesses to streamline administrative tasks and facilitate payment practices.

Affordable and innovative platforms, assist SMEs to perform due diligence and make better, more-informed credit decisions, in an easy and timely manner. They aggregate data from multiple sources including the Australian Securities and Investments Commission (ASIC), the Australian Business Register (ABR), Australian Financial Security Authority (AFSA), Australian Courts, mercantile agents (debt collectors) and information captured from an extensive database of over 50,000 customers.

Bonus Benefit: SMEs are helping the corporate/enterprise market

The corporate/enterprise market is also benefiting from the empowerment of the SME community. The data being lodged by the SME market is a brand new source of data for larger organisations that have always accessed credit risk data. Every bit of data lodged by an SME is now available to these larger organisations, giving them a unique view as to how debtors are paying both large and small suppliers. Traditionally they have only been able to rely on data being lodged by larger companies like themselves, not providing a full picture.

Colin Porter, CEO and Founder of CreditorWatch, says “Success can be seen by how fast the data in the bureau has grown and the quality of that data. The reason for our fast growth is two-fold: firstly, providing time poor SME’s an easy to use, affordable credit risk solution. Secondly, allowing larger companies to also access this unique data. Ultimately, the more customers we have, the more data we will have and vice versa.”

Conclusion

While late payments and cash flow problems persist in Australia, the fact remains that SMEs make up 96% of Australia’s businesses. While most don’t reach their fourth birthday, SMEs can begin to change this by becoming empowered with data. While governments should be doing more to encourage upskilling, digital adoption and tighter regulations on late payments, SMEs have the power to take matters into their own hands.

There are ways to access affordable data and one does not have to be qualified to engage with it. At the click of a few buttons, creditors can easily perform due diligence no matter how time poor they are. The data they engage with is empowering not just themselves, but also the wider community of SMEs and corporations. Data continues to become more accessible and the types of data that can be accessed is only growing. 

Patrick Coghlan
Managing Director
CreditorWatch
Ph: 1300 50 13 12
www.creditorwatch.com.au

October 2018

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