Payment defaults increase hints at a rise in insolvencies in 2020
The Small Business Risk Review data for Quarter 4 2019 revealed a 15% increase in payment defaults in Q4 2019 compared to Q4 2018, as well as a 30% increase year-on-year.
Many of Australia’s major industries continued the trend. The Transport and Healthcare industries are up 64% and 79% YoY respectively. Construction, a usual suspect when it comes to credit risk, reported a 30% increase quarter-on-quarter and the Rental and Hiring industry skyrocketed with a 71% QoQ increase.
Payment defaults are the first red flag on the road to administration, which is where dozens of Australian retail and hospitality businesses have ended up in the last 12 months.
Creditors need to be on high alert: 50% of companies that incur a payment default go into administration within 18 months.
State-wide increases in court actions
In another indication that SMEs are struggling to make ends meet, court actions are up by 9% YoY nationwide. All states, except Tasmania, reported an increase in court actions from 2018 to 2019, including:
- South Australia: 57%
- New South Wales: 39%
- Western Australia: 33%
Late-paying industries: the ones to watch
Some industries are repeat offenders when it comes to paying their customers on time, and small businesses are the ones to feel the effects first.
- Admin and Support Services: 90 days late in Q4 2019
- Rental, Hiring and Real Estate: 66 days late in Q4 2019
- Construction: 64 days late in Q4 2019
If you’re a business owner, these lengthy waiting times are detrimental to positive cash flow and growth. Equip yourself with CreditorWatch’s debt collection tools to better manage your accounts receivable process and check our Payment Predictor to assess how your customers are paying you in comparison to the rest of the market.
Key takeaways for the year to come
As the recent collapse of popular Australian businesses has shown, no business is immune to the difficult economic climate. The big increases in payment defaults and court actions indicate trying times ahead for small and big businesses alike.
The best solution?
Educate yourself with as much information as possible to do your due diligence on your customers. There are a number of warning signs to look out for and act on – including a poor credit score, payment defaults and court notices – and these are highlighted for you in all credit reports on CreditorWatch.
Become familiar with adverse behaviour, like lagging payment times or directors that are associated with other failed companies, and act accordingly. CreditorWatch’s suite of automated tools and 24/7 alert system help you stay ahead of your debtors. Find out how here.