A perfect storm of higher interest rates on business loans and the traditional Christmas cashflow squeeze threatens to put SME bottom lines under pressure as the end of the year approaches.
Last week ANZ Bank, Westpac Bank and Commonwealth Bank became the first among major Australian financial institutions to lift variable business loan rates to compensate for the increased costs they face because of sub-prime driven crisis on international financial markets.
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The banks have reportedly lifted rates by an additional 15 to 25 basis points on top of the 25 point rise implemented by the Reserve Bank of Australia in November.
Economists remain uncertain when the uncertainty on international financial markets will ease, leaving open the prospect of further rate rises in the months ahead as the US sub-prime crisis worsens.
For SMEs with loans or overdraft facilities exposed to the business rate rises, the challenge as Christmas approaches is to take the necessary steps to put their cashflow on a solid footing, according to Pitcher Partners private clients division head David Thomson.
“People are rushing around more worried about making sales than cash, staff are going on holiday, and with businesses shutting down cashflow can come to a grinding halt if you don’t manage it properly,” Thomson says.
Thomson provides these six tips for businesses wrestling with the Christmas cash flow crunch:
- Make sure you prepare a cashflow that goes well into next year – if possible, all the way to June 2008 – and make sure it’s correct.
- For established businesses, revisit your actual cash movement for the same period last year – depending on the circumstances, it can provide a good guide to what you need to do this year.
- If you have a credit facility with a bank and you intend to use it, make sure you know what your limit is – you’d be amazed how many people have a credit facility that expires or was for a particular purpose but they think it has carried forward.
- Businesses that remit PAYG and GST quarterly have until 28 February to lodge and pay tax, an extra month than usual. Use that extra month wisely and make sure your cashflow planning correctly states when you have to pay.
- Obtain an up-to-date list of debtors and chase them for payment today. Remember that the majority of businesses will close this week, so make sure you invoice all December sales now – if you don’t, December deliveries will become January invoices, and at best February cash.
- If staff dealing with cashflow are taking holidays, make sure there is someone else stepping into their shoes – don’t let cashflow dry up because you waited for Mary to come back before depositing those cheques.