Insolvency Payment Defaults
5 mins read

Using data to predict business default and insolvency risk

It’s a tale as old as time for too many businesses within Australia. You engage with another company, everything runs smoothly for a few months, and then out of nowhere that company collapses – and you’re left struggling to reclaim debt. This can have a devastating impact on business cash flow and leave you scrambling to stay afloat.

What if there were proactive steps your business could have taken before partnering with the insolvent company? CreditorWatch’s predictive data and tools provide insights into an entity’s likelihood of default and risk of insolvency. Our payment behavioural analysis and credit risk management solutions provide a lifeline to any business, helping them avoid falling into this debt trap.

Prediction of future default or insolvency

By understanding the payment behaviour of your trading partners, you can better foresee any risks of debt and insolvency, and mitigate any impacts to your cash flow before it’s too late. At-risk industries, in particular, would most notably benefit from predictive payment tools, helping to future-proof their cash flow and trading partnerships.

Let’s take a common scenario for example – Business X is a food supplier with a strong client list. It has not had many late payment events or obvious indications of credit risk. It has even previously ordered business credit reports on its clients, creating a sense of trust that they would continue to be creditworthy moving forward. However, Business X then finds out that one of its key trading partners has claimed insolvency. They owe a considerable amount in unpaid invoices, and Business X had no forewarning that this adverse event was likely to happen. Business X makes moves to try and reclaim the debt but unfortunately it is too late, as they are now competing with a bunch of other creditors. As such, it is increasingly unlikely Business X will be able to reclaim any of the funds. Their cash flow takes a considerable hit, including their ability to order new stock and fulfil customer requests. The flow-on impact of their debtor’s poor payment behaviour creates a domino effect, and it finds itself at risk of default too.

All this could’ve been avoided if Business X were proactive about managing their risk exposure. CreditorWatch’s predictive data and tools helps businesses achieve this. Our Business Risk Index is a monthly economic indicator which reveals insolvency risks of Australian businesses by region and industry. Our July 2022 Business Risk Index indicates that businesses in the food and beverage services sector have the highest probability of default over the next twelve months (7.1 per cent). By understanding their odds, Business X could’ve acted earlier to protect their cash flow.

Stay ahead of the game with CreditorWatch’s suite of risk-prediction tools, and don’t be the last to know about the credit risk of a client or partner company. We help you more effectively predict if, and when, clients and trading partners may default on a payment or become insolvent.  Leverage our predictive data for high-level decision-making, including which regions or industries to avoid, to strategically ensure you maintain a consistent cash flow. Our 24/7 monitoring service also sends out instant alerts of any warning signs, allowing you to mitigate risks quickly.

CreditorWatch’s high accuracy prediction tools empower businesses to make smarter decisions

Insufficient cash flow caused by debt and unpaid invoices can have a considerable impact on any business, big or small. In an environment of rising inflation, ongoing supply chain delays and skilled labour shortages, the risks of default and insolvency grow in tandem. Businesses cannot rely on positive client history alone to future-proof their cash flow. It’s time to give your business a competitive edge by using high-accuracy prediction tools to avoid bad debt.

CreditorWatch’s Payment Predictor tool allows you to discover your trading partners’ payment history and habits over the last 12 months, including the number of days on average taken to pay its bills. It also compares their payment patterns to other businesses in its industry – if they are slower than the industry, this indicates that they are probably a slow-paying debtor. Further, CreditorWatch’s Payment Rating analyses your clients’ payment history and reliability, calculating its likelihood of on-time payments, expressed in a rating system from A to E. If this rating were to decrease, you’d be immediately notified.

These credit management tools help you identify the crucial early warning signs of credit risk, such as:

  • Businesses paying slower than the industry standard
  • Late payment on invoices
  • Deteriorating payment behaviour in general

This allows you to better understand who you’re working with, and whether or not to engage in new relationships, or speed up credit processes.

CreditorWatch also predicts an entity’s likelihood of default. Our RiskScore assesses the creditworthiness of your trading partners, by assigning a credit score between A – F and indicating their risk of default in the next 12 months. You will be alerted instantly if this score changes, allowing you to make quick and necessary financial decisions.

In addition, our interactive trade platform, DebtorLogic analyses your entire Aged-Trial Balance (ATB) so that you can prioritise collections from your debtors. DebtorLogic allows you to identify trends in customer or supplier payments across the market, and assess each entity’s likelihood of paying an outstanding amount. Once you identify a risky debtor, you can move swiftly to adjust payment terms and avoid non-payment, helping to bolster your collection rate.

On a larger scale, CreditorWatch allows businesses to leverage its predictive data for financial modelling and high-level decision-making. Many financial institutions use our data block for their credit decisioning processes. Our data block of 40 factors covers financial, demographic and behavioural risks and can be tailored to each organisation’s specifications and preferences.

CreditorWatch’s advanced suite of predictive tools empowers businesses to easily analyse the payment behaviour of potential and existing trading partners. Start making more accurate predictions of future behaviour to proactively mitigate risk, reduce bad debt, and protect your cash flow.

To learn more about CreditorWatch’s payment prediction tools, get in touch with us today.

Trade Consultant
Lucinda joined CreditorWatch in 2019 and is a Trade Consultant. She specialises in CreditorWatch’s ATB-analysis trade program, DebtorLogic. Lucinda helps small to large businesses streamline their credit management and collections processes to proactively mitigate their debtor risk. She’s passionate about offering CreditorWatch’s data insights to strengthen her clients’ existing practices and to reduce the risk caused by late payment behaviour.
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