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Zombie Companies Multiply as Payment Times Blow Out

Business Risk Review – June 2020

Government relief packages have been helping companies stay afloat during the pandemic, however, CreditorWatch’s data shows some SMEs have been relying on these incentives to delay entering into administration.

In June 2020, there was a 20% decrease in SMEs entering into external administration compared to May 2020, and a 50% decrease compared to June 2019.

There has also been a 17% decrease in court actions and 25% decrease in payment defaults compared to last month.

Although this may appear to indicate a rebounding economy, in reality, businesses are struggling with significant cash flow issues. Payments in June 2020 were overdue by an average of 49 days across all industries – a 342% increase from June 2019. 

The latest data on overdue payments show that businesses are relying heavily on government subsidies and lenient creditors for survival.

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Which industries are the slowest to pay?

Payment times: June 2020 vs June 2019

Public Administration & Safety From 3 to 35 days overdue 1067% increase YoY
Arts & Recreation From 6 to 60 days overdue 900% increase YoY
Information Media & Telecommunications From 5 to 44 days overdue 780% increase YoY
Rental, Hiring & Real Estate From 9 to 70 days overdue 677% increase YoY
Financial & Insurance From 10 to 75 days overdue 650% increase YoY

CEO Patrick Coghlan’s advice on easing the insolvency curve

According to Patrick Coghlan, CEO of CreditorWatch:

“We’re likely to see a significant jump in the number of businesses coming out of hibernation and entering into administration in the coming months.”

“Government stimulus packages like JobKeeper, JobSeeker, mortgage holidays and the much-needed Safe Harbour changes have provided businesses with a buffer of protection. Until now, the priority has been to keep as many businesses as possible above water.

Come September, support packages will be lifted and we’ll find that a substantial number of ‘zombie businesses’ have been kept artificially afloat.

Banks will not be prepared to prop unviable companies and nor should taxpayers, however, the government can ease the impending insolvency curve by lifting Safe Harbour measures gradually and forming an administration service to support the industry.”

Know your customers and mitigate risk

  • Be prepared to face zombie companies post-September by understanding your customers’ payment history and assess how they’re paying you in relation to the rest of the market.
  • Join businesses like Officeworks by utilising our trade program DebtorLogic. This innovative ATB-analysis tool has helped hundreds of CreditorWatch customers find their riskiest debtors and reinvent their collection strategy. Find out more here.
  • Discover the benefits of being a secured creditor. Protect your security interests with PPSRLogic and get in touch with the friendly team at CreditorWatch to learn how to protect your business during this period.

Try CreditorWatch for free