Unfortunately, it's common for small business owners to encounter difficulties when dealing with larger companies. When you form partnerships with big businesses, such as supplier relationships or outsourcing functions like accounting or marketing, you have to have a steady stream of services and payments moving in both directions. This doesn't always work out.
When you form partnerships with big businesses, you have to have a steady stream of services and payments.
In Australia today, a lot of smaller businesses feel like they're being "squeezed" by their larger business partners, who aren't always proactive about making payments on time. This puts the SMEs in a bind. Do they demand faster payments, even when they don't have much leverage to demand anything at all? Or do they sit back, wait and risk the stability of their business? It's a difficult question, but it demands an answer. SME owners need working capital to survive.
Explaining the "cashflow gap" problem
Unfortunately, as they look to sustain their operations by using big companies as business partners, SMEs often run into cashflow issues. Xero research found that a "cashflow gap" exists today for small businesses – large companies tend to have a lot of red tape that gets in the way of making payments on time, and as a result, there's a gap between when SMEs need cash and when they get it. The organisation singled out red tape as "the scourge of progress," noting that it's the most common reason that big businesses are late with payments.
Xero's polling found that 83 per cent of SME owners complain about the complexity of dealing with larger organisations. Because the big companies aren't paying them in a timely fashion, it makes it hard for them to invest in a healthy future. Many SME leaders hope the government will intervene and force the big companies to pay faster; that's an uphill battle, though.
Breaking down the possible solutions
If your SME has a "cashflow gap" issue that it needs to address, what's your game plan? There are a number of possibilities. Dynamic Business recommends starting by defining your payment terms clearly. If you require customers to pay you within 30 days or else incur penalties, make that position clear in advance and don't hesitate to enforce it later.
Collecting payments for your SME doesn't have to be a case-by-case matter – you can standardise the rules so that everyone has to follow them, even the big companies. If your terms are stringent, enforcing them is a simpler process, and clients will always know where they stand.
Successful small businesses are as proactive as possible about pursuing fast payments and maintaining the cashflow they need to run effectively. Meanwhile, they also have finance solutions they can fall back on during tough times.
Adding a layer of financial security
You always want to have a clear process in place for collecting payments when you need them, but sometimes a process isn't enough, and delays still happen. For this reason, it helps to have an extra layer of financial security in the form of debtor finance. A good debtor finance offering allows you quick access to capital during times of need.
When you're running a small business, cashflow can make or break you. The last thing you want to do is watch your business go under because of cash that's tied up in your debtors' books. Talk to our experts at Cashflow Finance today about how you can get proactive about this issue. Once you've got steady access to capital, gaps in payment will be a thing of the past, once and for all.