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CreditorWatch sees SME cracks appear prior to coronavirus
By Leon Gettler >>
A LOT OF BUSINESSES have done it hard since the shutdowns and social distancing rules came in. But CreditorWatch data suggests small businesses were struggling with cash flow issues long before the coronavirus lockdown measures came into play and were unprepared for the current downturn.
Patrick Coghlan, CreditorWatch CEO, said it was all too evident that many businesses were unprepared – although not many companies would have been prepared for it.
He said the majority of small to medium enterprises (SMEs) only held a few weeks, maybe a couple of months at best, of cash reserves that can withstand a 70-90 percent downturn in revenue. 
Mr Coughlan said the data showed that small businesses were being paid 40 percent slower than the previous quarter.
“And that was for Q1 2020, so that’s pre-coronavirus,” Mr Coghlan told Talking Business. “So they were already struggling to get cash in the door before they got hit with the pandemic itself, which means there is underprepared and extremely underprepared – and it was a horrible situation for most SMEs and their directors and owners out there.to have to deal with this, as well as the already slow-paying customers.”
RIGHT ACROSS THE BOARD
Mr Couglan said the problem was right across the board, but there were some specific sectors that stood out.
He highlighted agriculture, which was no surprise as it had been hit by fires and floods in late 2019 and early 2020; construction which is always slow over that Christmas-New Year period; retail which had experienced a number of administrations taking place in November and December; transport was struggling; and a lot of professional services businesses, with many customers slowing their payments and looking to see whether they could move somewhere else.
“SMEs at the moment are doing it extremely tough and the challenge is how do they get out of it?” Mr Coughlan said. “I’ve been talking about zombie companies, companies that were struggling pre-corona.
“If corona hadn’t come along, you’d be questioning whether they would still be around within the next six months as a result of tightening cash flow, reducing margins and a reduction in profit and revenue,” he said.
HELPFUL GOVT RESPONSES
Mr Coughlan said the government sector had responded by introducing terrific measures like insolvency changes.
“What I think that does, though, is kick the can down the street so to speak in terms of directors and shareholders looking at their business and saying: ‘We probably should have wound this up in early 2020 but why don’t we take advantage of JobKeeper and why don’t we take advantage of the fact that we can trade insolvent and let’s see what happens. Who knows what will happen? It gives us six months, so let’s go with that.’ “
That said, there were plenty of signs of businesses looking for opportunities. 
Faced with revenues falling 90 percent, businesses were now coming up with new models, selling food online and marketing it through social media, or re-producing office furniture recalibrated for a work-from-home environment, or businesses creating protective gear for health workers and ventilators.
Mr Coughlan said CreditorWatch had seen a significant drop in credit inquiries in March, but in April it jumped 36 percent not only on existing customers but new customers applying for credit. This was a healthy sign.
“I think what you’ll find is suppliers, distributors, manufacturers will start to have a good sense of which of their customers are hibernating or potentially going out of business,” Mr Coughlan said.
“They’re starting to do new searches on companies that are coming to them and they’re getting a sense of which of their existing customers are healthy – and that’s all designed for them to be able to continue to trade or to start trading as soon as possible,” he said.
Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.
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