Cash flow basics to tackle tax debt

AN SME financier has called for a renewed focus on cash management, as payment terms fell short in the March quarter and around 80,000 Australian businesses now have downgraded risk profiles.

Scottish Pacific Benchmark Queensland state manager Wayne Smith, says businesses need to believe they can collect invoices, despite increasing delays for bill payments.

“It is now taking businesses a week longer than it was in mid-2009 to pay their bills – for a business that turns over $5 million and has been accustomed to collecting invoices in 45 days, this takes circa $100,000 out of their working capital,” he says.

“It is still possible to collect invoices in a timely manner and we have seen this in our own business with our clients’ collective debt turn holding firm at around 45 days.

“Check that customers have received invoices and that they are correct, ask them to confirm payment dates in advance, chase within a couple of days of the due date and follow up quickly on promises to pay which don’t materialise.”

Smith says the level of tax debt in small businesses has grown considerably as cash flow remains the biggest burden on SME growth.

“Payment terms have deteriorated and ATO arrears have become a significant issue as traditional sources of credit have tightened up on the back of the GFC,” he says.

“As an organisation that specialises in funding growth in the small businesses sector, our current take is that many are not yet feeling confident enough to invest in the future,” he says.