Australia’s small and medium businesses are facing a sharp increase in cost pressures as geopolitical tensions in the Middle East drive volatility in global oil markets, lifting fuel prices, threatening to push inflation higher and put the brakes on the broader economy.
The shock comes at a time when Australia’s transport and logistics sector is already under significant financial stress.
New data from CreditorWatch shows one in 12 Australian road transport operators closed their doors in the past 12 months, with failures in the sector rising more than 40% year-on-year as high operating costs, elevated interest rates and intense price competition squeeze margins.
Chief Executive Officer of Earlypay, James Beeson, says the latest fuel shock will be felt well beyond petrol stations, with rising transport and freight costs expected to flow through to food producers, wholesalers, retailers and other small businesses already battling soft demand, delayed customer payments and tighter margins.
Moreover, the inflationary effect is likely to push the Reserve Bank to continue along its current path of interest rate rises.
Beeson said the latest spike in global energy uncertainty could create a damaging ripple effect across the Australian economy, particularly for smaller operators with limited cash flow flexibility.
“This is the kind of global shock that lands quickly on small and medium Australian businesses,” Mr Beeson said.
“When fuel and freight costs rise dramatically, it is like a tax on consumers and businesses alike and the pressure on cash flow becomes immediate. For many SMEs already battling rising insurance and staff costs, there simply isn’t much buffer left.”
“The transport sector is right on the frontline, but the second order impact is much broader,” Mr Beeson said.
“When the cost of moving goods rises, everyone feels it. Food producers pay more, suppliers pay more, small retailers pay more, and ultimately Australian consumers wear the cost.”
Mr Beeson said smaller transport and trade-related businesses were especially vulnerable because many were already operating on wafer-thin margins in an environment of rising expenses.
“Margins are tight and costs keep climbing in the current environment so a shock like the current Iran conflict adding more cost pressures can quickly become a serious cash flow problem.
Some transport operators can pass on the higher costs to their customers but it’s not always easy in this economic environment and there is often a delay, even if they can pass it on,” Mr Beeson said.
In recent years the sector has faced mounting challenges including rising fuel, maintenance and labour costs, as well as driver shortages and regulatory pressures.
Beeson said cash flow flexibility was becoming increasingly important for businesses navigating volatile operating conditions.
“Businesses can be profitable on paper but still run into difficulty if payments are delayed while costs continue to rise,” Mr Beeson said.
Beeson says Earlypay’s invoice finance is a way to assist SMEs manage the current volatile trading conditions by unlocking cash tied up in unpaid invoices.
Rather than waiting 30, 60 or 90 days for payment, eligible businesses can access a large portion of the value of approved invoices upfront, helping them pay wages, suppliers, fuel bills and tax obligations on time.
“In today’s tough conditions, access to working capital can make all the difference. And even if it’s not needed today, it’s important that all businesses have a contingency plan in case their working capital situation tightens due to these types of events,” Mr Beeson said.
“Invoice finance gives businesses access to cash they have already earned, which can help them keep operating, keep goods moving and keep staff paid while they ride out what we hope is a short-term disruption.”
Mr Beeson said that in times of sudden global shocks, the strength of Australia’s 2.5 million SMEs is critical to the health of the broader economy.
“If small business is under pressure, the wider economy feels it very quickly so while the current pain is fuelled by oil and the transport sector, it won’t take long for the contagion to spread across all business and ultimately to consumers at every level,” he said.
About us:
ABOUT EARLYPAY
Earlypay Limited (ASX: EPY) is an Australian-listed lender which delivers flexible working capital finance solutions Australian businesses can rely on.
Earlypay has supported thousands of Australian SMEs for more than 25 years through solutions such as invoice finance and equipment finance - helping them improve cash flow, unlock capital and access a broader range of assets with confidence.
Contact details:
Mark Eggleton
New Romans
0430 095 111