Be more efficient
Small businesses are the engine room of the Australian economy, but two years on from the start of COVID-19, they continue to battle its lagging impact on trading conditions.
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Labour shortages that followed Australia’s border closures are leaving many businesses understaffed. At the same time, rising inflation and supply chain issues have made inventory expensive and difficult to source.
The Shift Business Index, which tracks the financial health of Australian businesses, shows wage and supplier costs continue to rise. In April alone, business owners directed an average 54% of their incoming cash to supplier costs.[1] The Council of Small Business Organisations of Australia (COSBOA) says a third of businesses are struggling to pay rising energy bills.[2]
Cash flow is a constant issue for small businesses
One of the biggest issues small business owners face is cash flow. The combination of inventory outlays and creditors failing to pay invoices on time can put a squeeze on available funds. Some business owners resort to dipping into their personal finances to cover the gap.
This is where a business overdraft facility can carry a business through a time of shortfall. Businesses can use the overdraft to pay for urgent inventory or cover a utility bill until invoices are paid and cash flow is back to normal.
Limitations of a bank overdraft facility
Traditionally, businesses have looked to their banks for a line of credit because the bank hosts their business transaction account. But banks are increasingly seen as out of touch with the needs of small businesses.
Research shows that more than a third of small business owners are considering alternative lenders who can provide funds in a reasonable timeframe and are more attuned to their needs.[3]
Bank credit requirements can also be onerous – many small business owners are loath to put up their private homes or business property as security. Extensive paperwork, a protracted approval process, and annual reviews are further reasons why business owners look for a bank alternative.
Introducing Shift Business Overdraft
Shift Business Overdraft is a bank-less overdraft facility that small to medium businesses can use to cover gaps in their cash flow.
- The overdraft is a revolving credit facility, from $10,000 to $1 million, that links to your business transaction account.
- You only pay interest on the funds you use. An 11.95% to 19.95% variable annual rate applies, depending on your business turnover.
- There's an annual fee of $495 or $795 depending on the account limit.
Why choose a Shift Business Overdraft?
The overdraft facility is easy to set up and use and was designed specifically to meet the needs of small to medium businesses.
- Business owners can open an account within minutes – there’s no lengthy or complicated application process and wait times.
- The credit limit is specific to the business based on real-time credit assessments.
- The overdraft links to an existing bank account, giving you choice and control of your money.
- Property is not required as security.
- You can make extra repayments or pay out the overdraft whenever you want, at no cost.
How does it work?
When a business registers with Shift, you’re asked to connect your business bank account. That allows Shift to categorise the business’s weekly incomings and outgoings.
Lending is based on an assessment of your business cash flow.
Shift Business Overdraft is already used by thousands of operators in the construction, retail, and warehousing industries who find it an easy and flexible cash-flow solution for their business.
Open a Shift Business Overdraft today
Choose a better way to manage cash flow. Click here to register with Shift.
[2] Council of Small Business Organisations of Australia, ‘Small Business Power Research Report’, 24 March 2022, accessed 25 July 2022.
FAQs
A business overdraft acts as a safety net, providing you with peace of mind in uncertain times. By having access to additional funds, you can better manage your cash flow fluctuations, maintain supplier relationships, and seize growth opportunities without significant delays.
How does an overdraft improve cash flow? ›
A business overdraft can be handy to give you access to extra funds when cover short term shortfalls when cash flow is tight. An overdraft works like a temporary loan and you can borrow as much as you like up to the overdraft limit. Repayment terms are flexible as long as you stay under your overdraft limit.
How do you treat overdraft in cash flow statement? ›
A bank overdraft should be treated as a negative cash balance when arriving at the cash and cash equivalents.
How is it possible for a business to make a profit but still have an overdraft? ›
Even though the business is profitable, the slow flow of cash into the business could make paying bills a difficult process in the short term. In this situation, an overdraft facility can help the business meet its short-term liabilities without having to take out a larger loan.
How can I improve my cash flow without an overdraft? ›
You can also negotiate better terms with your vendors, improve your invoicing procedures, and experiment with increased pricing to increase your cash flow.
- Lease, Don't Buy. ...
- Offer Discounts for Early Payment. ...
- Conduct Customer Credit Checks. ...
- Form a Buying Cooperative. ...
- Improve Your Inventory. ...
- Send Invoices Out Immediately.
Generally accepted accounting principles (GAAP) call for the reporting of such an overdraft balance as a current liability. Reclassifying an overdraft balance to a liability results in an increase in the reported cash balance from a negative amount to zero.
How do you use overdraft smartly? ›
Here are some methods you could use:
- Reduce your overdraft use over time.
- Repay the balance using credit with a lower interest rate.
- Shift your Direct Debits.
- Separate your overdraft from day-to-day banking.
- Use savings to clear your balance.
In the Statement of Cash Flows, cash and cash equivalents also include bank overdrafts, which are recorded under current liabilities on the balance sheet.
What is the accounting treatment of overdraft? ›
A bank overdraft represents the amount by which funds disbursed by a bank exceed funds held on deposit for a given bank account. Therefore, a bank overdraft represents a loan from the bank to an entity and, for financial reporting purposes, the bank overdraft should be classified as a liability.
Why is bank overdraft not included in cash flow statement? ›
In many countries bank overdrafts are repayable on demand so they do not qualify as investing activities in the cash flow statement but these overdrafts are treated as cash and cash equivalents.
A business overdraft acts as a safety net, providing you with peace of mind in uncertain times. By having access to additional funds, you can better manage your cash flow fluctuations, maintain supplier relationships, and seize growth opportunities without significant delays.
What are the disadvantages of a business overdraft? ›
A business overdraft isn't free and you'll pay an annual interest rate on the amount by which you're overdrawn. This rate varies between banks. Typically, rates for overdrafts are higher than for business loans. They can also change at any time so generally a business overdraft is considered a short-term solution.
Why is an overdraft good for a business? ›
A business overdraft provides you with access to additional funds up to an agreed amount that you can use as and when you need to. They can help with cashflow issues and unexpected expenses, and may be preferable to a business loan because you only pay interest on the overdraft balance.
How do you overcome poor cash flow management? ›
How to solve common cash flow problems
- Revisit your business plan. ...
- Create better business visibility. ...
- Get better at forecasting. ...
- Manage your profit expectations. ...
- Minimise expenses. ...
- Get good accounting software. ...
- Try not to overextend. ...
- Try to get paid quicker.
Sometimes, a business can be cash-flow positive but may not be profitable For instance, if a business operates at a net loss, borrowing cash helps create a positive cash flow. Similarly, when it sells a significant asset to raise capital, the money it receives is an inflow of cash.
Which strategy is a way to improve cash flow? ›
A few key strategies to enhance cash flow in your business are optimizing invoicing practices, fostering vendor collaboration, conducting customer credit checks, and prioritizing timely debt repayment.
Would an overdraft improve or worsen cash flow? ›
An overdraft is a borrowing facility attached to your bank account, set at an agreed limit. It can be drawn on at any time and is most useful for your day-to-day expenses as it can help you to manage your cashflow more flexibly. It is worth noting that loans are probably more appropriate for long-term funding.
What are the advantages of having an overdraft? ›
An overdraft gives you immediate access to extra funds when you don't have any left. Ideal for temporary financial issues, unexpected expenses or emergency costs, an overdraft gives you the comfort of knowing you will always have financial back-up. You only pay interest on what you use.
What does bank overdraft mean on cash flow statement? ›
A bank overdraft represents the amount by which funds disbursed by a bank exceed funds held on deposit for a given bank account. Therefore, a bank overdraft represents a loan from the bank to an entity and, for financial reporting purposes, the bank overdraft should be classified as a liability.
