Cash flow the leading cause of insolvency

October 22nd, 2014

Cash flow has been highlighted as a leading cause of insolvencies in Australia.

The possibility for company insolvency is one of the biggest issues among Australian small businesses, with cash flow the leading reason for companies to cease operating.

This is one of the core findings from recent data into business insolvencies from the Australian Securities and Investments Commission (ASIC).

Of the more than 10,000 company insolvencies that ASIC tracked in the last 12 months, 41 per cent reported that inadequate cash flow was the main reason behind the failure of their company. Other factors included poor strategic management (37 per cent) and trading losses (33 per cent), which both played a considerable impact on the performance of Australian firms.

While these figures suggest that insolvency has become a very real challenge for companies, it is also important to note the significant change that has occurred in recent years. In the 2011-2012 and 2012-2013 financial years, strategic management featured as the top reason for business insolvencies, while cash flow was relegated to second place.

The figures also pointed to the significant losses companies can incur as a result of another firm becoming insolvent. In fact, 97 per cent of unsecured creditors received only 11 cents in the dollar in repayment for their investments.

By industry, the most common areas for insolvency were in business and personal services (26 per cent), while construction and accommodation services also increased in number.

With cash flow clearly such a big challenge for companies, it is important for individuals to develop the right solution for their needs. Implementing a debtor financing solution, for example, can make it easier for companies to secure a regular cash flow for their business.

By taking these steps, companies can be sure they are getting the right cash flow solution for their needs and aren't risking the viability of their business.

Earlypay has supported Australian SMEs with fast and flexible alternative funding solutions for more than 20 years. Our business line of credit, debtor finance and equipment finance products allow business owners to proactively manage their cash flow, freeing up your working capital for investing in growth. To chat about whether our solutions could be right for your business, call us on 1300 760 205.

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].