The Small Business Risk Review Q1 2019, found that court actions across Australia have increased significantly in the 1st quarter of 2019 in comparison to Quarter 1, 2018. It’s no surprise to see worrisome numbers in the first quarter.
This is particularly due to the consequences of the holiday season. Despite the influx of court actions, as well as payment defaults, we have seen a decrease in bankruptcies and insolvencies.
In the recent Small Business Risk Review webinar, customers were polled to see how they would compare the trading conditions to last quarter. The response was a balanced result between positive and negative and 45% of respondents were neutral. “Despite the property downturn, business sentiment seems quite neutral. The federal budget was quite safe. It seems people are just treading water until the election,” said CreditorWatch CEO, Patrick Coghlan.
A different story is presented when you look at the stats for court actions. While there has been an increase in court actions across the nation, Queensland continues to be worrisome. The State has seen its largest increase in court actions in comparison to last quarter. It’s important to keep in mind that as court actions become larger and increase, there will be an increase in winding up notices.
New South Wales has also seen an increase in court actions by 15% and judgements by 21%. South Australia has seen the biggest increase in comparison to last year with court actions have increased by 50% and judgements by 44%. “It is interesting that stats appear to be much more dire than how people feel about current business conditions,” said Patrick.
“With significant increases in court actions across the nation, it is vital to perform due diligence and embrace technology to get paid sooner.”
According to the March 2019 Xero Small Business Insights, only 50% of businesses were cash flow positive in January 2019, down from 56% in December 2018. Past trends generally show that the first month of the year is when payments times are their slowest and cash flow drops. This can be due to the Christmas and school holiday period. After the rush of Christmas sales in November and December, money becomes tight in the first months of the year as inventory must be replenished, which depletes saved cash. In addition, business owners take holidays.
The Small Business Insights Report suggests that January’s business conditions may also reflect what economists are calling a per capita recession. It took an average of 36 days for a small business to be paid on an invoice with a 30-days term in January – almost a week late.
Small businesses are generally the poorest when it comes to credit management, they don’t want to turn a sale down and when it comes to collections, they become more reactive when the invoices are 60-90 days overdue. Small businesses seem to be the most vigilant that when businesses pay late, it has a big impact on cash flow.
A new report into late payment times was recently released by the Australian Small and Family Enterprise Ombudsman (ASBFEO) found that Australia’s largest businesses have been reluctant to disclose how quickly they pay SME suppliers, despite promising to fulfil invoices within fewer than 30 days. The report interviewed 2,400 SMEs and the data from more than a thousand big businesses and found that the promises rarely ring through. They found that it takes an average of 36.7 days for small businesses to get paid by large firms. The ASBFEO has been consistently reporting on late payment times and we can expect to continue to see more until the businesses who pledged to pay on time do so.
It’s not all doom and gloom. New bankruptcies across Australia have decreased by 20% in comparison to last year. Insolvencies have decreased by 18% in comparison to Quarter 1, 2018. They have decreased by 23% in comparison to Quarter 4, 2018.
In conclusion, it will be interesting to watch these stats as the property downturn continues and an election comes and goes. Despite this, these stats should be an eye-opener for anyone offering terms as an increase in court actions has a domino effect which will result in more winding up actions and inevitably more insolvencies.
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