Use Cards For Suppliers, Cash For Investment, Says Amex

Australian mid-market businesses are missing out on opportunities to grow and expand because of cash flow mishaps, warns a new report by Amex.

The analysis, published Monday (Dec. 12), found that 40 percent of mid-sized businesses surveyed by the credit card conglomerate admitted that they have either had to delay or cancel a strategic business objective because of cash flow management problems. A whopping 81 percent said they miss a growth opportunity every six months — or even more frequently.

Those missed opportunities are expensive for mid-sized firms, Amex added, with an average cost of about $26,000.

A New CFO

In its report, “Behind the Balance Sheet: Unlocking Hidden Value in Credit,” American Express highlighted how these data points reflect a bigger change in the mid-market community: The role of CFO is not what it used to be.

“While cash flow management will always be a top priority for CFOs in mid-sized Australian companies, the role of the modern CFO has evolved to become a key strategic lead within the business,” explained Martin Seward, American Express Australia’s VP of small and medium enterprises, in a statement.

“In an increasingly competitive economy, the modern CFO cannot afford to miss business opportunities due to cash flow pressures nor expend all their energies pouring over the weekly ebb and flow of cash,” he continued. “The benefits of using credit as a cash flow management tool are threefold: an extended interest-free period delays upfront payment, keeping cash in the business for longer, while lining supplier payments up with statement cycles helps receivables arrive before expenses are due.”

Today’s CFOs cannot afford to ignore cash management issues, but they are also facing taxing challenges because of cash flow. Two-thirds of companies surveyed said that their CFOs are forced to ignore other key business responsibilities to handle cash flow management.

Cash Vs. Credit

American Express’ Seward also noted that the research reveals the opportunity that mid-market businesses have when using a commercial card product to aid in these cash flow issues.

“When credit is used to manage predictable cash flow, CFOs can unlock hidden value in their business, as well as ease the burden of cash flow management,” the executive explained.

According to American Express’ report, there is a significant opportunity for mid-market firms in Australia to change their supplier payment habits as a way to remedy cash management problems. Researchers found that the majority (52 percent) of businesses said they pay suppliers via EFT. Nearly the same amount (48 percent) pay suppliers with cash. Paper check and direct debit follow behind.

While 51 percent said they pay domestic suppliers via commercial card, American Express concluded that there is a fundamental issue in these payment practices.

“The majority of businesses (85 percent) with predictable cash flow opt for cash over credit than using cash to fund business initiatives and using credit to manage cash flow,” the report stated.

Using cash to pay suppliers — whether it be via electronic transfers or checks — means companies don’t have that cash left over to invest in growth opportunities, the report explained. The additional float accessible with paying suppliers by card enables mid-sized firms a way to better predict cash flow, while still having cash on hand to invest within their own companies.

Overall, American Express found, mid-sized firms in Australia are feeling pretty optimistic about their futures. That means they have an opportunity to take advantage of that positivity and run with it.

“If mid-sized organizations are to take advantage of the positive sentiment and outlook for the sector, CFOs need to invest time in sourcing impactful cash flow management systems,” Amex concluded. “This will allow them to reap the upside of better cash flow and focus their energies on what truly matters: investment strategies that drive growth.”