Concerns are high for a looming apartment glut in Australia’s biggest cities: Sydney, Melbourne, and Brisbane.
The potential glut poses a risk to construction businesses that may face non-payment from developers affected by falling consumer confidence. Construction businesses should consider credit insurance to protect themselves from potential losses so they can trade with confidence, according to Atradius.
Mark Hoppe, managing director, ANZ, Atradius said, “Debt levels in the construction industry have increased and margins have decreased, especially for smaller businesses. When doing business on slimmer margins, the risks to cash flow are higher.
“A major customer going into default during or after a build can paralyse a business without credit insurance. For construction businesses, credit insurance can provide a valuable extension to the company’s credit management practices and help to ensure the business’s revenue and bottom line are protected.”
Atradius recommends four tips to help construction businesses face the apartment glut with confidence:
1. Issue invoices promptly
Make sure the invoice is issued at the first possible opportunity with a clear pay-by date.
2. Follow up late payments quickly
Payments in the construction sector take between 90-120 days on average and notifications of non-payments have increased. It is important to keep track of when invoices are due to be paid and follow up late payments before cash flow is affected.
3. Increase credit lines
Increasing lines of credit with lenders or suppliers can help maintain healthy cash flow even if there is an interruption of cash income.
4. Protect yourself
Construction works are often the first assets to be insured. However, one of the largest assets on the balance sheet, the trade receivables, is commonly left uninsured and vulnerable to risk. The average business receivables asset makes up 30 to 40 per cent of the ledger, meaning that, without appropriate credit insurance, the business is at high risk.
Mark Hoppe said, “Businesses can also protect themselves from a variety of forces that interrupt cash flow with trade agreements, contracts, and trade credit insurance. Not only does credit insurance help keep cash flow steady in the event of non-payment, it can also provide an necessary tool for construction businesses to trade confidently in the face of fluctuating market forces.”
 Atradius Market Monitor - Construction industry – Australia, February 2016