Cash flow improves for New Zealand SMEs, but there’s no time for complacency

Here’s some good news: as 2021 nears its end, pandemic-related business woes seem to be receding, at least for some. In New Zealand, small and medium enterprises (SMEs) are getting back on track, according to the Xero small business index.

The index was up by 22 points to 110 points in October, indicating improvement in sales, job openings and invoice payment days. Overall SME sales increased by 6.4% in October compared to the previous year after declining for two months, and available jobs improved by 4.4%. Notably, SMEs had to wait an average 23.8 days to get their bills paid versus 26 days in the same month last year.

Commenting on the survey, Xero’s New Zealand managing director Craig Hudson said: “It appears that small businesses have their cash flow back under control in October after a couple of uncertain months.”

While the numbers look encouraging, it is not all smooth sailing ahead. For instance, wages declined by 3.8%. Many industries are also still struggling. The hospitality sector’s revenue, hardest hit due to lockdowns, was down by 7.6%. Even those sectors that did well are working a lot harder and spending more time to get the job done like the construction sector that saw 10.4% higher sales in October.

So while New Zealand’s small businesses seem to be stabilising, it may be too early to predict a positive outlook for them in 2022, as a new wave of global troubles like inflation and demand-supply disruptions continue to pose challenges.

While there are limits to how much businesses can neutralise such external forces, there are many things that are within their control. At RIABU, we believe that putting in the best processes for invoicing management should be at the top of SMEs’ to-do list.

Here is why: the higher your overdues, the less efficient your receivables management, the less sales time your salesmen have for selling, the greater the lost revenue. Less sales also means poorer customer service, which could create an unhealthy cycle of less business.

Hence, RIABU advocates measuring account receivables using the term Days Sales Outstanding (DSO) so you can track how effectively you are managing your payment cycle.

Entrepreneurs are good at creating products and even good at selling them. But they tend to neglect the invoicing process, often until it is too late. A lack of sufficient working capital to run your business day to day is by far the biggest cause of business failure. As an SME, you should never let your guard down when it comes to getting paid on time.

Get more tips on effective cash flow management from our book, Let the Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com