‘Tried and true’ cash flow methods costing businesses $6.12b in growth opportunities

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Australia’s mid-size businesses are missing out on $6.12 billion in growth opportunities annually due insufficient or variable cash flow, according to new research from American Express.  

The company’s new report, Behind the balance sheet: unlocking hidden value in credit, involved a survey of 355 Chief Financial Officers from companies with annual revenue values between $2 million and $300 million

It reveals that approximately one in three (38%) mid-sized businesses have been delayed or unable to achieve a strategic business objective due to cash flow pressures. Furthermore, four in five mid-size businesses (81%) are missing out on a growth opportunity every six month or less, with the average cost of each missed opportunity being around $35,000.

Although an overwhelming majority of CFOs (81%) agreed that credit is a good cash flow management tool that enables businesses to retain cash for longer, many said traditional methods of cash flow management prevail in their organisation. Only 55% of CFOs use credit to manage cash flow, while over a third still use business loans (37%) or an overdraft facility (34%) and one fifth (21%) use invoice discounting.

Martin Seward, ‎Vice President for Small & Medium Enterprises at American Express Australia said by sticking with ‘tried and tested’ cash flow management methods, businesses are burning through available cash in the bank and limiting their room to drive forward strategic objectives.

“When credit is used to manage predictable cash flow, CFOs can unlock hidden value in their business as well as ease the burden of cash flow management,” he said.

“While cash flow management will always be a top priority for CFOs in mid-sized Australian companies, the role of the modern CFO has evolved to become a key strategic lead within the business.

“In an increasingly competitive economy, the modern CFO cannot afford to miss business opportunities due to cash flow pressures nor expend all their energies pouring over the weekly ebb and flow of cash.”

By using credit as a cash flow management tool, almost half of CFOs said this extra cash flow in the business would help fund staff training (44%), hire staff (38%) or purchase new equipment (44%). Additionally, one fifth of businesses (21%) would increase their investment in innovation and R&D.

“The benefits of using credit as a cash flow management tool are three-fold – an extended interest free period ’  delays upfront payment, keeping cash in the business for longer, while lining supplier payments up with statement cycles helps receivables arrive before expenses are due”, Seward said.

“Thirdly, early payment discounts can be negotiated with suppliers by creating a history of reliable on-time payment.”