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According to National Australia Bank (NAB), 44 per cent of business owners already cite cash flow as their top concern.
Additionally, data from Banjo Loans found that while 65 per cent of SMEs said their day-to-day cash flow is stable and predictable, only 60 per cent are confident their cash flow will comfortably absorb more frequent Payday Super contributions.
With the change to superannuation payment timing set to come into effect on 1 July, NAB executive for small business, Olivia Brosca, said the reforms could have a significant impact on businesses that are unprepared.
“This is a structural change to when payments are made, and, for some businesses, it will change the rhythm of money moving in and out,” Brosca said.
“The earlier businesses understand the impact and plan for it, the more comfortable they’ll feel when the changes come into effect.”
Keeping cash flowing
Brokers working with SMEs said cash flow concerns are front of mind for many clients.
Speaking to Broker Daily, Nathan Murphy, director of BlueRock, said he had already seen businesses grappling with the implications of the changes.
“A lot of my clients are self-employed business owners and they’ve historically managed cash flow around quarterly super obligations. That quarterly rhythm has almost become baked into how they think about their working capital,” Murphy said.
“Shifting to Payday Super effectively removes that float. Every pay run now carries a super liability on top of wages, and for a business that’s already navigating the ups and downs of sales, that’s a real structural shift in how cash moves through the business.”
Matthew Chik, managing director of MC Finance Group, said the reforms represented not only a cash flow challenge, but also an operational one that businesses would need to absorb.
“Moving from a quarterly superannuation payment system to monthly, fortnightly, or even weekly contributions will substantially increase the administrative burden on SMEs,” Chik said.
“Depending on payroll frequency, businesses could be required to process superannuation payments between three and 17 times more often than they do currently.
“It is likely to create a permanent increase in operating costs for SMEs through additional administration, compliance obligations, software expenses and cash flow pressures.
“These higher overheads will inevitably affect business profitability and borrowing capacity.”
Also speaking to Broker Daily, Melissa Ashcroft, director of AAA Financial Group, said the impact would vary depending on the sector.
“Many SMEs have become accustomed to holding cash for longer periods before making super contributions, and the move to Payday Super reduces that flexibility. Industries with variable income streams, seasonal revenue or high wage costs are likely to feel the impact most,” Ashcroft said.
Solutions
Ashcroft said many of her clients were focusing on the fundamentals of their businesses ahead of the changes.
“We’re seeing clients focus on improving cash flow forecasting, reviewing working capital facilities and ensuring they have sufficient liquidity buffers,” Ashcroft said.
“Some are also revisiting debtor management processes to bring cash into the business more quickly.”
Payday Super is also influencing demand for credit products.
Murphy said interest in working capital facilities, particularly lines of credit and overdrafts, was increasing among his clients.
“For a lot of clients, this has been the trigger to put a proper facility in place that gives them comfort in advance of the changes,” he said.
“A line of credit or overdraft is generally the most suitable solution. They’re drawing only what they need, repaying as cash comes in, and the cost is relatively low when managed well.
“For clients with equity in their home or investment property, the major banks such as CBA, NAB and ANZ are well suited, offering competitive rates and genuinely flexible facilities.
“Even without property, if we can present a strong and profitable business, an unsecured line of credit or overdraft with a major bank can still be a highly cost-effective option to help manage cash flow changes such as the introduction of Payday Super.”
[Related: How Payday Super could trigger ‘structural shift’ in SME lending]
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