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Leveraging Trade Payment Data in the COVID-Impacted Economy

Traditional risk indicators are no longer substantial in the current economy

Despite the ongoing pandemic and recession, Australian businesses are experiencing fewer payment defaults, court actions and insolvencies compared to the same time last year. There were only 518 external administrations in July 2020 compared to 998 in July 2019. In Q2 2020, the finance and insurance sector reported a 47% decrease in payment defaults and a 41% decrease in court actions compared to Q2 2019.

Although these initial figures seem to indicate that businesses are doing well, creditors need to be cautious.

In Q2 2020, payment times rose by 343% across all industries, with the average business paying 44 days late compared to 13 days in Q2 2019. Late payment times indicate significant cash flow issues and this discrepancy reveals that many companies are being artificially propped up by government packages.

Due to government and banking sector policy interventions, creditors can no longer solely rely on traditional data assets such as payment defaults, court actions and insolvency notices to assess credit risk. Businesses that are significantly impaired or effectively insolvent could potentially show no signs of obvious stress.

Patrick Coghlan, CEO of CreditorWatch, warns that creditors need to prepare for a sharp market readjustment when government support ends and zombie companies emerge.

Creditors now need to look at alternative data sources for decision making

While struggling businesses hide behind stimulus packages, creditors need to think outside the box and leverage non-traditional data sources to identify distressed businesses. Trade payment data is a perfect example.

By assessing a company’s payment trends and comparing their payment behaviour with the industry’s average, creditors can stay ahead of bad debt. When a business has liquidity constraints and is struggling to fulfil its short-term liabilities, delaying payments to suppliers is generally the path of least resistance in terms of keeping creditors at bay.

According to James O’Donnell, Managing Director of Open Analytics,

“Business-to-business transactional data is a vast and largely untapped resource for credit decisioning. Delayed invoice payments and reductions in business-to-business transaction volumes are among the most predictive early warning indicators for credit risk and should be a foundation of any modern creditor’s underwriting and risk management framework.”

CreditorWatch has exclusive access to trade payment data from thousands of SMEs

CreditorWatch works with over 50,000 businesses, integrates with their accounting packages and collates payment data including accounts receivables, payment cycles, balances and arrears. This unique data set contains trade payment information which shows how businesses are actually paying their invoices and how other businesses are paying them. By applying risk intelligence, they’re able to identify payment trends across the market and generate highly accurate payment predictions.

Government incentives have put a mask on traditional barometers when it comes to understanding risk exposure. Credit and risk managers should be looking at trade payment arrears in order to identify distressed businesses. Payments amongst SMEs are a blind spot for traditional credit bureaus as they lack the relevant data.

With exclusive access to the latest SME trade payment insights, CreditorWatch is helping businesses manage risk exposure in these uncertain times. Find out more about our unique data in my blog post or get in touch by emailing neill.borg@creditorwatch.com.au.

Connect with Neill


Neill Borg

With nine years of experience in financial services, Neill has a wealth of knowledge helping businesses reassess their processes to streamline credit management and mitigate risk.

As Enterprise Account Director at CreditorWatch, Neill works with the largest corporates in Australia, and is passionate about commercial risk data, automation, consulting and building strong client relationships. He also represents CreditorWatch at the Australian Finance Industry Association (AFIA).

In his downtime, Neill enjoys photography, growing his impressive whisky collection and spending time with his two young daughters in the great outdoors.