Australia: businesses brace for an insolvency surge

Payment Practices Barometer

  • Australia
  • Agriculture,
  • Chemicals/Pharma,
  • Construction,
  • Food

16th June 2021

Why strategic credit management becomes paramount as Australia prepares to face an upward trend in trade credit risk.

Introduction

B2B liquidity support has helped many businesses keep a strong grip on trade credit risk
management during the pandemic. Due to deterioration of customers' invoice payment trends, businesses in Australia told us they needed to employ internal credit management processes while trying to minimise external financing. However as trade credit risk becomes is expected to worsen over the coming months,  businesses will need to continue putting strategic measures in place.

The Atradius Payment Practices Barometer provides us with the valuable opportunity to  hear directly from businesses how they are coping with changed trading and economic  circumstances caused by the pandemic. The survey questionnaire was completed by   businesses in Australia during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

Our survey findings reveal that an average of 54% of Australian survey respondents' B2B credit sales resulted in late payments. This points to a significant proportion of working  capital tied up in overdue trade credit. The longer a debt remains unpaid, the more likely it  is to become a write-off. Among our survey respondents an average 5% of receivables  were recently written off as uncollectable. Such losses can threaten the viability of a business. Effective invoice debst collection is therefore paramount.

As the insolvency environment is expected to deteriorate further during the course of 2021, businesses could benefit from taking a proactive approach to minimising the risks
of payment defaults. All businesses are at risk, although SMEs are often the least equipped to manage defaults as they tend to have smaller cash reserves.

To minimise risk, businesses should tighten their credit management processes to protect themselves from potential customer insolvency. Care should be taken to look at whole supply chains to avoid any potential domino effects, where one insolvency leads to others in the chain.

Key survey findings for Australia

  • Three in five of the businesses polled (60%) incurred increased debt management administrative costs during the pandemic
  • 2021 already showing signs of an insolvency surge
  • Almost one third of the businesses polled (30%) expressed concern about economic conditions over the coming months.
  • Australian businesses expect and upward trend for DSO and nearly a quarter anticipate issues with maintaining adequate cash flow due to deteriotation of trade credit risk.
  • 53% of the businesses polled in Australia believe that selling on credit to B2B customers will be more common over the coming months as a short-term financing tool for customers.

Interested in getting to know more?

For a complete overview of both payment practices and trade credit risk trend in Australia  in the local agri-food, construction, chemicals/pharma , please download the complete report.

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Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation, advice or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.