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  • Small business at risk of insolvency due to late payments: CreditorWatch

Small business at risk of insolvency due to late payments: CreditorWatch

Late payments to small business are three times that of those to big business adding more pressure to an already struggling sector according to the October 2022 CreditorWatch Business Risk Index (BRI).

by | 15 Nov, 2022

Small business at risk of insolvency due to late payments: CreditorWatch

The latest data revealed that trade receivables for small business have dropped 18 per cent in the past month to the lowest levels since October last year, while payment defaults have continued to increase at a rate of 20 per cent per month over the past year.

In contrast, revenue in big business is up 14 per cent from the financial year 2021–22 across all public companies and ASIC reporting entities. Profits are up 9 per cent despite reduced margins.

The BRI also found that despite a drop in court actions to recover payments, it is still up 50 per cent year-on-year, and it is Western Sydney especially the regions of Merrylands-Guildford and Canterbury that are at the highest risk of default.

CreditorWatch chief executive Patrick Coghlan said a lack of capacity to collect payments is starting to have a serious impact on small-business trade.

“Our Business Risk Index data highlights that small business’s limited capacity to enforce payment terms and collect payment arrears is having a significant impact,” he said.

“Trade receivables continue to decline and trade payments defaults, a lead indicator of insolvencies, are at their highest point since October 2020. Small businesses are crying out for additional support.”

According to CreditorWatch chief economist Anneke Thompson, nearly all of the important forward-looking indicators — consumer & business confidence, job vacancies, and B2B trade defaults — are showing clear signs of deterioration.

“Instinctively, this seems unwanted, but unfortunately a significant slowdown of the economy is one of the only cures for inflation,” she says.

“The challenge is not allowing small business to suffer the brunt of the impact of a slowing economy, which unfortunately is usually the case.

“Small businesses need to exercise extreme financial discipline, and we are already seeing signs of this in increasing B2B trade defaults, as this means businesses are taking action when they are not getting paid. Over the next year to two years, cash flow will be king, and small businesses should be as ruthless as big business in demanding invoices owed, and using all resources available.”

On an industry level, food and beverage services have the highest probability of default over the next 12 months at 7.2 per cent followed by arts and recreation (4.6 per cent) and transport, postal, and warehousing (4.6 per cent).

The October BRI found that the discretionary spending sector is already starting to slow down, even if this is difficult to see via retail trade data, as dollar volumes are now likely increasing as a result of inflation.

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