A weaker economy appears to be flowing through to business debts, with one credit broker reporting a major surge in the number of Australian firms making insurance claims for unpaid invoices.
The latest NCI Trade Credit Risk Index, a quarterly survey of credit risks for Australian businesses, recorded a 50 per cent jump in the number trade credit insurance claims made between the March and June quarters this year.
It said there were 462 claims lodged by local businesses by the end of June, up from 309 in the March quarter. This figure was the highest ever recorded in the index’s seven-year history.
The result saw a corresponding rise in the total value of these claims, hitting $34.1 million — up from $27.8 million in the previous quarter.
Unsurprisingly, it was the construction sector that saw the highest number and value of claims being lodged, given the nation’s house price slump.
Electrical topped the list by value, with claims worth $4.92 million, closely followed by building/hardware at $4.44 million.
The next highest was labour hire, with claims adding up to $3.21 million in the quarter. A list of the 10 industries with the highest value of trade credit insurance claims lodged in the three months to 30 June is found below.
The majority of claims were lodged by businesses in the Sunshine State, according to the index, with 29 per cent of all claims submitted in the June quarter done so in Queensland.
NSW and Victoria accounted for a further 28 per cent and 22 per cent, respectively, followed by 10 per cent in WA and 8 per cent in SA. Tasmania and both territories accounted for 1 per cent of all claims each.
“It’s crucial for every business to keep track of overdue payments and credit arrangements to avoid bad debts,” said Kirk Cheesman, managing director of NCI Trade Credit Solutions.
“An increasing number of Australian businesses are struggling to pay their debts on time or at all, which in turn places increasing cash flow pressure on the businesses they owe.
“According to our latest findings, business conditions for bad debts have hit their riskiest level in three years, so unfortunately, businesses need to consider the possibility of non-payment from their suppliers as insolvency activity rises.”
The news comes amid a separate warning from barrister turned wealth adviser Dominique Grubisa of DG Institute, who warned that it is cash flow constraints rather than a lack of profitability that tend to be the highest cause of business failures.
Top 10 industries lodging trade credit insurance claims (Q2 2019)
- Electrical – $4.92 million
- Building/hardware – $4.44 million
- Labour hire – $3.21 million
- Employment agencies – $1.85 million
- Paper/printing/stationery – $1.69 million
- Plumbing – $1.66 million
- Wool suppliers – $1.57 million
- Manufacturing – $1.41 million
- Food/provisions – $1.39 million
- Electronics – $1.08 million
Source: NCI Trade Credit Risk Index
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.