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An increase in the volume of overdue trade invoices and increasing debt collection could be a pointer of economic deterioration, according to credit bureau illion.
The credit bureau has released new research showing that trade invoice payments are facing delays, placing businesses in further financial stress when coupled with falling revenues and rising costs.
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According to the company, business failure risk is trending higher with “little evidence of near-term relief”.
illion said businesses operating in the ‘food services’ and ‘construction’ industries have the highest percentage of business failure, given they have the largest proportion of overdue trade payments (those more than 60 days past due).
These were closely followed by the ‘retail services’ and ‘transport’ sectors, both at 10 per cent risk of failure.
At the other end of the scale, ‘financial & insurance services’ as well as ‘professional & technical services’ both at 3.5 percent and ‘wholesale trade & manufacturing’ at 4 percent were found to have the lowest risk of business failure.
Barrett Hasseldine, head of modelling at illion, said: “When we focused on high-risk businesses, irrespective of their industry sector, the research found that 57 per cent of all outstanding trade invoices were over 60 days overdue in March 2023, many times higher than the overdue rate across all Australian businesses, which is only around 6 per cent.
“Overdue trade obligations were therefore strongly indicative of business failure risk.
“In addition, high risk businesses also suffered a large deterioration in overdue trade payments between July 2022 and March 2023, climbing from 42 per cent to 57 per cent.”
However, national head of growth at business finance lender Earlypay, Lee Trego, said the situation demonstrates the need for finance brokers to help SME clients find solutions.
Speaking to The Adviser, Mr Trego said: “In tougher economic times, with access to credit getting more difficult, some businesses will inevitably start to pay trade creditors slower, as a rule. Combine with that the increase in failure rates (stats show that business insolvencies are on the rise) this creates further working capital pressures for businesses impacted.”
However, Mr Trego said SME finance brokers are well placed to support these SMEs by providing access to dedicated lenders, such as Earlypay, which can support clients even if the speed of payment slows, while also offering help to point businesses in the right direction regarding the customers they choose to trade with.
“Many of our clients are not experiencing the same level of slowdown, given some of the facilities we provide offer additional support to help businesses with debt verification, collection and allocation,” he said.
“All these processes are vital in ensuring good credit control on a receivable ledger to keep cash moving and payments coming in.”
He said the trajectory of the economy would continue to make “invoice finance an even more obvious choice for trading businesses in those high cash need sectors”.
[Related: Earlypay appoints 4 managers]
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