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SME recovery some way off despite positive signs

Adrian Flores
Adrian Flores
13 August 2020 1 minute readShare
SME recovery some way off despite positive signs

New data shows there are some positive signs of stability in the small-business sector, but not enough to allay concerns about the overall health of the Australian economy.

According to digital credit agency CreditorWatch, the number of businesses defaulting on payments fell by 13.2 per cent in July and average days to payment decreased by 7.6 per cent across all sectors compared to the previous month.

However, payment times remain 224 per cent higher than July 2019, across all sectors, and an 11.6 percent fall in the number of business administrations in July.

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Industries that showed the greatest fall in payment times were:

  • Arts and recreation fell to 26 days overdue in July 2020, down by 34 days but still 160 per cent above July 2019
  • Finance and insurance fell to 42 days overdue in July 2020, down by 33 days but still 500 per cent above July 2019
  • Healthcare and social assistance fell to 34 days overdue in July 2020, down by 18 days from June but still 209 per cent above July 2019
  • Construction fell to 41 days overdue in July 2020, down by one day from June but still up 241 per cent compared to July 2019

“While at first glance, a decrease in business administrations, defaults and payment times seems to indicate green shoots appearing in our economy, we should be cautious,” said CreditorWatch chief executive Patrick Coghlan.

 

“Payment times remain high, indicating significant cash-flow issues, while the number of companies going into administration is far below the monthly average we would expect, telling us that many firms are being artificially propped up.”

Mr Coghlan said that, until now, the priority has been to keep as many businesses as possible above water, noting that the extension of JobKeeper measures to March 2021 and the mooted extension of safe harbour measures, including high limits on the amount of debt that SMEs can incur while still trading, will keep SMEs afloat.

However, he also said that while there may be further falls in credit defaults and payment times, it would be premature to call these “green shoots”.

“However, the number of ‘zombie companies’ — those being kept out of administration artificially — continues to grow, and policymakers need to consider the gradual easing of measures to ensure good money is not being thrown away on bad companies,” Mr Coghlan said.

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“Just as investors are watching listed companies closely during the reporting season to ensure they are not hiding behind government payments, creditors need to be keeping close tabs on SME market confidence and are working with debtors to build sustainable cash flow.”

Source: CreditorWatch

SME recovery some way off despite positive signs
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected]ia.com.au.

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