iscover 
The lender pointed to credit reporting agency CreditorWatch’s latest Business Risk Index, which found business-to-business late payments had reached their highest level since January 2020.
The findings come as businesses prepare for another challenging financial year. While headline inflation eased to 4.0 per cent in the 12 months to May, underlying (trimmed mean) inflation rose to 3.6 per cent, remaining above the Reserve Bank of Australia’s 2–3 per cent target range.
The Reserve Bank also held the cash rate at 4.35 per cent at its most recent meeting, although Westpac and NAB continue to forecast further rate increases this year.
“Late payments are at their highest level in six years, and that tells us cash-flow pressure is spreading through Australian businesses,” said Earlypay’s chief executive, James Beeson.
“Adding to those pressures, Payday Super and the Fair Work minimum wage increase are two immediate changes business owners need to build into their plans for the year ahead.
“Combined with the broader pressure on fuel, energy, stock, freight and other inputs, it makes forward-looking cash-flow planning more important than ever.”
Pressure building unevenly across economy
Beeson said the new financial year was an opportunity for businesses to assess whether their cash flow was capable of supporting both growth opportunities and mounting cost pressures.
According to CreditorWatch, the transport, postal and warehousing sector recorded a rolling annual insolvency rate of 1.24 per cent, while manufacturing reached 1.13 per cent. More than 7 per cent of invoices in the transport sector were more than 60 days overdue.
Beeson said those industries, along with other businesses carrying significant labour, fuel and supplier costs, could remain profitable while still experiencing pressure on cash flow.
“Profit and cash are not the same thing,” he said.
“A business can record a sale but still be waiting weeks or months for the money to arrive, while wages, tax, superannuation, suppliers and other operating costs must be paid on time.”
Cash flow under the spotlight
Further pressure is set to arrive from 1 July, when the national minimum wage increases to $1,004.90 per week or $26.44 per hour and minimum award wages rise by 4.75 per cent. “Wage increases at the minimum and award level often become a reference point for the wider labour market,” Beeson said.
“For many SMEs, that can mean upward pressure on the overall salary cost base, not just for employees directly covered by the increase. In a market where businesses are already managing late payments, higher input costs and tax obligations, even a modest increase in payroll costs can affect cash flow and margins.”
He added that every business would face different challenges over the next 12 months. Some would seek funding to grow while others may focus on managing rising costs and delayed customer payments.
“A business may win an excellent new contract but then need to employ more people, buy stock, pay suppliers or invest in equipment before the customer payment arrives,” he said.
“That is where working capital becomes a strategic issue. It is not simply about helping a business get through a difficult period. It is also about giving owners the capacity to act on opportunities when they present themselves.”
On top of wage increases, businesses will also be obliged to pay superannuation at the same time as wages under the new Payday Super reforms.
Brokers have told Broker Daily that this change will create significant cash flow hurdles for some businesses and could trigger a “structural shift” in business credit needs and behaviour.
A role for brokers
Beeson said that among financial advisers, brokers will play an important role by helping SME clients assess their funding needs before cash flow becomes a problem.
Rather than focusing on a single finance transaction, he said advisers should be discussing business plans, upcoming commitments and whether existing funding arrangements were capable of supporting them.
“Most SME owners are busy running the business, serving customers, managing staff and keeping operations moving,” he said.
“A good adviser can help owners step back and look beyond a single transaction. That means understanding what the business wants to achieve, what it will need to fund along the way and whether its current cash position and funding arrangements are ready to support it.
“Those conversations are most valuable before the business has committed to a new contract, investment or expense, rather than after a funding gap has already appeared.”
Indeed, Connective’s head of commercial and asset finance, Brent Starrenburg, told Broker Daily that tougher business conditions were reshaping brokers’ roles to SME clients, providing an opportunity for relationship development.
Beeson added that while risks remained, businesses that understood their cash-flow position would be better placed to respond to both challenges and opportunities.
“There are risks in the market, but there are also real opportunities,” he said.
“Businesses cannot predict everything that may happen over the year ahead, but they can understand where they want to go and what their cash flow will need to deliver.
“Your plans are only as good as the cash flow available to support them.”
[Related: Brokers urged to ‘check in’, not just ‘check up’ with clients]
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