Pollies Tell SME’s To Get By On Less. Banks Sell Money James. Baby It’s Cold Out There

 In Daily Column, Debtor Finance, Invoice Factoring

Oh Canada, not only the nicest people but the nicest banks as well!
Ohhh Canada, not only the nicest people but the nicest banks as well!

In Canada they have a special government-owned bank (called the Business Development Bank of Canada) that focuses on lending to SMEs. According to Smart Company’s James Thomson, the bank has supported 28,000 Canadian firms to the tune of more than $13 billion.

Wouldn’t it be great if Australian SMEs had access to this type of banking? However, according to the head of the ACCC, Graeme Samuel and Small Business Minister, Craig Emerson, apparently not!

The failure of a similar scheme in Victoria in the 1990s was cited as a mitigating factor in not reprising the idea, with Samuels adding that “bureaucrats have no place becoming bankers.”

Instead, Mr. Emerson believes competition in the banking sector would encourage capital flows into the smaller banks. Yes, it probably would Craig and next week I’m off for an all expenses holiday to Mars. The idea is theoretically sound but the timeframe is kinda longish.

As the chief executive of the Australian Bankers Association, Steve Munchenberg, says, the banking sector has changed for good. “Banks were lenders. What they are now are allocators of scarce resources.”

Except Steve, the Banks could allocate more resources, just look at the Big 4s profits last quarter.

However, SMEs may have a white knight! Greg Evans from the Australian Chamber of Commerce and Industry contends that SMEs should look for ways to structure their business such that they require less finance. I think they’ve already been doing this Greg. And, I might add, for quite a considerable time. Why not have a pro bono info line at the major banks open from 4-5am on Sunday mornings. The banks could run it through a 1900 number and punters could sit in a queue, get charged 90c a minute and never have their call answered.

The GFC has certainly brought a unique set of challenges to Australian business, particularly SMEs, however, the commercial world has endured periods of low bank liquidity, and of course will so again.

I remember one of my favourite mentors telling me once: “Banks sell money, that’s their business James.” Yes, it really is that cold. The fact is SMEs cannot afford to wait for a bail-out (unlike say large banking institutions). As usual they have to look inwards for answers…and that’s exactly what’s been happening O.S.

SMEs in the UK, Europe and the US have turned their focus to working capital tied up in their own invoices. The formula is thankfully simple. Calculate the amount of working capital tied up in accounts receivables. Next, look at the turnover of receivables (when you get paid).

If the turnover is around forty five days or more, copy your international cousins and sell a portion of your accounts receivables to an invoice financier. Be prudent however. Make some calls see which provider best suits your needs.

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