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Businesses paying bills faster but threats to recovery remain

Adrian Flores
Adrian Flores
12 January 2021 1 minute readShare
Businesses paying bills

New data reveals payment times for Australian businesses improved across most industries in December, but snap lockdowns and border closures towards the end of last year could dampen a full economic recovery.

The latest CreditorWatch Business Risk Review for December 2020 showed 15 out of 19 industry groups have reported a reduction in the time it takes to pay their bills.

Despite this, the data revealed variance across different industries, with a challenging business environment producing winners and losers.

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CreditorWatch chief executive Patrick Coghlan said the reduction in payment times reflects better economic conditions at the end of 2020, but lockdowns and border closures at the end of the year due to COVID have the potential to stymie this.

“But there’s a lot of potential for a quick recovery, similar to that experienced in the middle of 2020 when the original lockdowns were removed,” Mr Coghlan said.

 

“Sectors such as accommodation and food services could demonstrate a strong comeback when existing restrictions and border closures are put to bed.”

As for external administrations, CreditorWatch data revealed an uptick of 23.4 per cent in December, following a rise of 4.4 per cent in November.

Annually, administrations have dropped by 32.4 per cent, reflecting the impact of the temporary moratorium on insolvent trading, which ended on 31 December.

CredictorWatch predicted the number of companies entering voluntary administration is likely to rise through 2021, notwithstanding new provisions that give smaller businesses until 31 March 2021 to negotiate with their creditors to allow them to devise a plan to continue trading and work out their debts.

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Harley Dale, chief economist at CreditorWatch, said although insolvencies are likely to rise this year, business failure — even for firms with mounting debts — are not a given and there are plenty of opportunities for struggling outfits to resolve their issues.

“It is yet to be seen whether the pattern of insolvencies will be orderly, sporadic or volatile, but it appears we are not headed for a steep cliff of business failures, which are likely to take time to feed through the system,” Mr Dale said.

“What’s key is for businesses to work with experienced advisers and start to negotiate with creditors now. That’s going to be the best way to continue trading even through difficult economic periods. Insolvency is not inevitable.”

Businesses paying bills faster but threats to recovery remain
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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].

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