Jan 30, 2017

Small cap debt squeeze

Small cap debt squeeze

Australia’s small cap companies in the mining sector are drowning in a sea of unpaid customer bills, with $577 million worth of outstanding invoices crippling their ability to grow, new research has found.

The Invoice Market’s SME Cash Flow Crisis Report shows that small and medium enterprises (SMEs) in the mining sector are  owed on average $76,785 each.

800 companies defined as a small or medium sized enterprise with a normal annual gross revenue of less than $10 million were surveyed for the report.

Alarmingly, 50 per cent of mining SMEs have no strategy in place to manage their company cash flow, which impacts their ability to pay their housing and other living expenses.

This in turn creates a disincentive to hire new staff, and makes it harder to pay existing workers.

The Invoice Market chief executive officer Angus Sedgwick said the findings had important implications for the mining sector, which employs 173,000 people across Australia.

“One of the most striking findings of this report is that while late payments cost companies money, it is the hidden cost in time that is the most revealing,” Mr Sedgwick said.

“On average, 65 per cent of mining companies have to ask twice or three times for their bills to be paid by errant corporate customers.”

In seven per cent of cases, companies are forced to demand payment four or more times.

According to the Australian Bureau of Statistics, 53 per cent of mining companies go out of business in the first three years of operation[1].

And according to the Australian Securities and Investment Commission, poor cash flow is cited as a factor in 40 per cent of all business failures[2].

The problem is getting worse. Fifty-seven per cent of mining customers have sought to extend their payment terms in the last 12 months, suggesting cash flow is an emerging problem for mining SMEs.

Mr Sedgwick said that contrary to popular belief that big businesses and multi-nationals treat small businesses poorly, small businesses were actually the tardiest in paying their bills to other SMEs.

“This means that Australian SMEs are prepared to break their word with suppliers to help their own business.”

“It doesn’t have to be this way. If SMEs can free up their cash flow, it will not only help their own businesses, but it will have profound benefits for national economic growth and job creation,” he said.

Key findings of the report include:

  • Across all industries, more than 40 per cent of SMEs typically have more than 11 invoices outstanding, collectively worth an average of $38,000.
  • Extended across the economy, this amounts to a $76 billion ‘cash flow handbrake’.
  • Schools and health services have the lowest rate of delinquent debts of any industry in the country, suggesting that teachers and doctors are significantly more commercial, and better at managing their debtors, than other industries.
  • Accounting, financial services, agriculture, construction and professional services companies also fare well.
  • SMEs in hospitality and tourism, real estate services, manufacturing, advertising, transport, mining, utilities and IT suffer the longest wait times before their bills are paid.

 

Click here to download the full report:

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