A new East & Partners survey for CommBank shows that 73% of businesses are interested in transitioning recent cash-funded equipment into a sale and finance back arrangement1. That figure is consistently high across business sizes, but most pronounced for SMEs (82%).

The widespread interest in finance / leasebacks also confirms most businesses have opted to dip into their cash reserves to purchase some form of equipment outright. While that can make sense in some circumstances, it can also mean businesses have outlaid large amounts of capital up front for depreciating assets that are essentially tools of trade

This appears to be an expanding trend. Separate research from 20222 shows that over seven in ten businesses used cash to buy IT equipment to help set up their staff work from home. At the time, most were ready to consider a sell-and-leaseback approach to enhance cash flow.

Chris Moldrich, General Manager Asset Finance at CommBank, says that considering a financing arrangement on recent purchases can not only spread the costs over the effective live over equipment but can also open up access to much-needed cash.

“We’re seeing many businesses consider how to unlock cash from their existing assets to ensure they can meet their expenses and have working capital to operate and grow,” Moldrich says.

“It’s clear businesses are keen to preserve capital, so they are well placed to emerge from this point in the economic cycle.”

Businesses need the flexibility to move

The new research also shows that businesses seek more flexibility to cover their financing and working capital needs. That’s likely to be driven by factors from macroeconomic conditions to supply chain disruptions.

One indicator is that almost eight in ten want access to pre-approved lending options, so they have visibility, rising to over 90% for mid-market businesses3. Those figures are even higher when it comes to seeking cash flow funding that isn’t secured against personal property. Again, this was most popular among mid-sized businesses3. 

Elizabeth Huxley, General Manager Working Capital says, “In the current environment, businesses want flexibility to manage fluctuating cash conversion cycles and have the confidence to boost liquidity if they need it. 

“Instead of limiting themselves only to traditional financing options, businesses are looking at different ways to smooth their cashflows. That’s where they can use assets like receivables as security rather than bricks and mortar.”

Huxley says CommBank’s Stream Working Capital4 solution is a good example, where businesses can unlock cash from unpaid invoices with no property security required. The solution has no fixed repayments and can be scaled up and down to suit a business’s sales activity.

“For some businesses, we’re seeing changing terms of trade impacting their ability to get paid quickly. Early access to capital tied up in invoices is one route to relief, but leveraging inventory is another.”

Huxley notes that CommBank’s trade and working capital specialists recently helped a national industrial business access the value of current assets on its balance sheet. In that case, the financing bridged payment delays across its global supply chain, secured against receivables and warehouse inventory.

Strategies for better cashflows

So, businesses can consider accessing cash flow and working capital in various ways, sourced from existing balance sheet items. Here are just three and the questions worth asking: 

  • Equipment: what are the current and future costs I am taking on by buying equipment outright, and would a sale and finance/lease back strategy help preserve cash and reduce risk?
  • Invoices: is a mismatch between invoicing and receiving payments creating cash flow headaches? Would access to funding secured against your unpaid invoices be preferable as security over your residential/commercial property?
  • Inventory: are you stockpiling inventory to meet future demand and encountering longer terms of trade that create a divide between expenses and receipts?