Surviving as an SME in a competitive business landscape is never easy.

A mere half (51 per cent) of businesses are still running four years after opening their doors, according to McCrindle Research. Further to this, ASIC figures show 46 per cent of insolvencies in Australia are due to cash flow issues or high cash use.

That’s the bad news, but what’s the good? With the right risk prevention and risk minimisation strategies, such as implementing trade credit insurance, as part of their overall business insurance program, SME owners can prevent poor cash flow from crippling their business.


1. Tackle late invoices

Cash flow is the number one issue affecting small to medium businesses right across Australia. According to The Invoice Market’s research that’s $76 billion worth of outstanding invoices and two million businesses drowning in a sea of unpaid bills.

If this issue was fixed, close to half a million jobs could be produced, reducing Australia’s unemployment rate to almost zero.

The Invoice Market’s SME Cash Flow Crisis Report illustrates that Australian businesses are constantly owed an average $38,000 each, with corporate customer excuses ranging from ‘lost in the system’ and ‘in dispute’ to ‘being reviewed internally’ and ‘being processed offshore’.

2. Optimise inventory management

SMEs often misjudge how much stock they’ll need. Having capital tied up in inventory that’s sitting dormant on warehouse shelves isn’t an optimal use of funds, particularly if you’re paying additional storage, handling and insurance costs.

However, failing to have enough stock on hand to fulfil orders can leave customers frustrated, leading to churn, reputational damage and profit losses.

Establishing a sophisticated inventory management system is crucial to avoiding these problems. Many SMEs automate their inventory management processes using technology to optimise stock replenishment.


3. Reduce unnecessary overheads

ASIC’s data revealed that poor financial control is the third most frequently cited reason for insolvencies, suggesting business owners could tighten up on their spending.

Savings can be made across a number of areas, including:

Office costs: Reduce stationery budgets by going paperless or investing in technology solutions. Also, encourage staff to switch off lights, computers and other electricity-sapping devices when they’re not in use.

Rent: Could you downsize your current premises? Sub-letting your office space is also an option.

Staff: Before hiring new staff, evaluate whether you could save money by outsourcing functions or spreading the work across existing employees.

Travel: Use Skype and conference call solutions to avoid unnecessary travel to meetings. You can also opt for economy travel rather than business or first class on flights.

Even with the best preparation, businesses can encounter cash flow problems.

Contact a member of the MGA Insurance Broker team to review the business insurance risks to your organisation.