The announcement of the government’s $130 billion JobKeeper Payment scheme was initially greeted with a sigh of relief by many businesses impacted upon by the financial challenges caused by COVID-19. However, this relief has turned to worry as cash flow becomes a problem and businesses struggle to pay their eligible employees a salary.

The scheme supports businesses significantly affected by COVID-19 with the objective to help keep more Australians in jobs throughout the economic downturn. It is open to eligible employers, sole traders and other entities to enable them to pay their eligible employee’s salary or wages of at least $1,500 (before tax) per fortnight.

As a financial support to businesses, JobKeeper will assist in keeping many businesses, particularly small and medium size businesses, running. Currently, more than 900,000 Australian businesses have registered their interest in accessing JobKeeper payments and 500,000 businesses had already filled in formal applications for the scheme[1].  However, whilst this is a lifeline, the scheme will create major cash flow issues for some businesses, particularly those that are earning no income and waiting for applications to be reviewed and approved.

Why does JobKeeper cause cash flow issues?

Employers need to pay all eligible employees a minimum of $1,500 (before tax) per fortnight to claim the JobKeeper payment. This will be paid to the employer in arrears each month by the government. The first payments to eligible employers commenced in the first week of May 2020.

This means a business has to have the finances to pay their staff in advance of being reimbursed, creating a situation where there’s a shortfall of cash flow for at least 30 days, a particularly challenging situation, especially if the business has significant reduced earning capacties.

For some employers to be eligible for the claim, they were required to pay out employees’ wages from March 30 to the time they receive the payment. This means they will have to cover at least five weeks’ worth of payroll before being reimbursed.

Solution to help SMEs financially

Businesses have the option of taking out a loan, which includes an overdraft, or look into other options such as a business-to-business buy now pay later method. This method enables small and medium sized businesses to improve their working capital and achieve financial flexibility as required in the current operating environment.

An example is Marketlend’s payment gateway offering called Unlock. It extends supplier terms from 30, 60 to 90 days, freeing up a businesses’ cash flow to be redirected towards staff wages instead of paying supplier and agency invoices and commercial rent, and is a great alternative to a business taking out more debt.

UnLock extends payment terms on invoices and suppliers are paid upfront in return for a fee. Businesses can use UnLock funds, starting from $50,000, immediately rather than dipping into their accounts before sales are acquired.

The JobKeeper initiative is a great help for businesses who want to retain staff.  If cash flow is managed well with a working capital solution, businesses will have the flexibility to keep suppliers paid with the same payment terms and still pay their staff.

UnLock provides services for a multitude of industries, including veterinarians, medical centres, manufacturers, pharmaceuticals, dental practices, accountants and more. For more information, email UnLock at assistance@unlockb2b.com or call (02) 6189 2504.

[1]https://www.abc.net.au/news/2020-04-29/businesses-not-signed-up-jobkeeper-payments-coronavirus/12193698