As 2018 draws to a close, Australian businesses are looking back on a year of increased insolvencies and late or non-payments.
Atradius, a global leader in risk management and credit insurance, has seen more export claims in 2018 than since the global financial crisis (GFC) 10 years ago.
But while the economy remains in relatively good shape, it’s important for businesses to learn from the events of the past 12 months, Atradius warns.
Exporters should protect themselves from the risk of financial difficulties that stem from erratic customer payment patterns, they say.
Mark Hoppe, managing director, Oceania, Atradius, said: “We’ve begun to see an uptick in claims for customer non-payments, as well as reports of customers paying more slowly.
“Over the last few years, it was normal to see pockets of industries experiencing difficulties.
“But currently, there are slower payments and claims being reported in many industries across the entire country.”
Insolvencies in retail and construction sectors
Historically, the retail and construction sectors have provided reliable barometers of economic health.
When there are high numbers of insolvencies in these sectors, businesses in other sectors can become concerned.
The construction sector was strong in the middle of the year but the last three months have seen some significant companies become insolvent, including companies with longevity in the industry.
“While Atradius always sees some claims in construction, these have gone up recently,” Mr Hoppe said. “Furthermore, Atradius is seeing claims across all industries, including those that are typically strong performers. The food industry, for example, is normally a highly reliable sector but, recently, more late payments and insolvencies are causing concern in the sector.
“It’s difficult to point to a single driver for this downturn. Consumers may be struggling with cash flow – house prices are dropping and the share market has also dropped, which could affect consumer confidence.”
Be aware of external factors
Mr Hoppe says now is the time for business owners and managers to really understand the market, not just their own customers.
“Customers can be strong, honest performers but are affected by factors in their market,” he says.
“For example, the drought or tightening up by the banks can effect even the best paying customers. External factors are more of a concern than internal or management factors currently, so it’s important for business decision-makers to be aware of those factors.
“The current market instability and unpredictability means it’s more important than ever for businesses to have trade credit insurance.”
Mr Hoppe says credit insurance can protect businesses against customers that don’t pay, making up the shortfall and ensuring cash flow remains positive.
“Companies without credit insurance in place should speak with a reputable advisor sooner rather than later.”