Why JobKeeper creates cash flow issues for businesses


businesses struglling with COVID-19 and Jobkeeper payment scheme

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By Guest Author

The announcement of the government’s $130 billion JobKeeper Payment scheme was greeted with a sigh of relief for many businesses who are struggling with paying staff wages as part of the financial challenges caused by coronavirus (COVID-19).

The scheme supports businesses significantly affected by the coronavirus to help keep more Australians in jobs and is open to eligible employers, sole traders and other entities to enable them to pay their eligible employee’s salary or wages of at least $1,500 (before tax) per fortnight.

As a financial support to businesses, JobKeeper will assist in keeping many businesses, particularly small and medium size businesses, in business. Currently, more than 900,000 Australian businesses have registered their interest in accessing JobKeeper payments and 500,000 businesses had already filled in formal applications for the scheme. 

However, whilst this is a lifeline, the scheme will create major cash flow issues for some businesses, particularly those that are earning no income and waiting for applications to be reviewed and approved.

Employers need to pay all eligible employees a minimum of $1,500 (before tax) per fortnight to claim the JobKeeper payment. This will be paid to the employer in arrears each month by the government. The first payments to eligible employers have now commenced.

JobKeeper payments can be made for the period beginning 30 March 2020. This means a business has to have the finances to be able to pay their staff in advance of being reimbursed, creating a situation where there’s a shortfall of cash flow for at least 30 days, a particularly challenging situation, especially if the business has no income. 

Leo Tyndall has seen businesses being burned too many times by unethical lending. After decades of working in the ‘big end of town’ in global legal and financial services firms, Leo realised the ‘small end’ was being badly neglected. While large-scale businesses had any number of sophisticated finance options available to them, the small and medium sized enterprise (SME) space was largely ignored.

“The JobKeeper initiative is a great help for businesses who want to retain staff. If cash flow is managed well with a working capital solution, the business will have the flexibility to keep suppliers paid with the same payment terms and pay their staff wages,” say Tyndall.

“The JobKeeper payments are paid out as a reimbursement. That means, in order to be eligible to claim, employers must have already paid out employees’ wages from March 30 to the time they receive the payment.

“For some employers this means they will have to cover at least five weeks’ worth of payroll before being reimbursed presents cash flow difficulties for many businesses. Businesses have an option of taking out a loan, which includes an overdraft, or looking at other options.”

UnLock, a finance and investment marketplace, has developed a new payment gateway offering, called UnLock, which can extend supplier terms from 30, 60 to 90 days, freeing up a businesses’ cash flow to be redirected towards staff wages instead of paying supplier and agency invoices and commercial rent.

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