As the economy continues to recover, SMEs are being warned not to get too excited and rush into winning new contracts or gaining a rush of new sales.
Bibby Finance’s Asia Pacific CEO, Greg Charlwood said SMEs are at risk of ‘overtrading’ as the economy continues to improve, and as a result could run into cash flow troubles.
“The danger is that businesses, particularly young or smaller businesses, could feel as if they’ve won the lottery when they receive a large order. But that same order could spell the end of their business,” he said.
According to Charlwood, unless the business has the cash to fulfil the order, the increased demand for its products or services could lead to serious cash flow problems and even insolvency problems.
“The problem many SMEs face is the lack of available working capital. A new order may mean taking on extra staff or purchasing raw materials up front. This all costs money, which sometimes isn’t available within the business and may not be readily available through traditional funding routes. It’s in this instance that invoice financing can provide a much-needed cash injection to help a business to expand,” he said.
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