With the global economy looking fragile and one of Australia’s largest trading partners, China, slowing down, it’s important for Australian business decision-makers to re-evaluate their position as the new financial year begins, a trade expert warns.
Mark Hoppe, managing director, Oceania, Atradius, said: “The start of the new financial year is traditionally an ideal opportunity for business decision-makers to reassess budgets and priorities, and reset goals and objectives for the coming 12 months and beyond.
“With the global economy on a slower growth path, and clear threats to ongoing growth, it’s important for Australian businesses to take these factors into account for their new financial year plans.”
The world economy is uncertain. The risk of the US-China trade war continuing to heat up is relatively high, and this would have a substantial impact on the Australian economy, he says.
Also, China’s economy is slowing down, affecting its ability to import goods from Australia and creating risks for Australian businesses dependent on exports to China.
Ongoing uncertainty around Brexit and the potential for oil price volatility are also causing concerns.
Spending on infrastructure projects
The net result of all this uncertainty and turmoil is that, while economic conditions in Australia are currently stable, this could change.
Recently-announced state and federal budgets have earmarked considerable funds for infrastructure projects, as well as investment in health and education. This could help keep Australia from falling into negative growth, says Mr Hoppe.
The insolvency outlook for Australia has deteriorated slightly but remains relatively stable.
This means Australian businesses can generally do business with a reasonable degree of confidence. However, there is always a risk of late or non-payment by customers who are affected by global trade slowdowns or other factors outside the company’s control.
“One of the challenges for businesses looking to grow during uncertain or challenging times is the risk of not being paid by customers,” Mr Hoppe said.
“Non-payment makes it difficult to predict and manage cash flow accurately, which in turn makes it difficult to not only expand but, often, to conduct business as usual. Being unable to pay suppliers or staff, for example, due to non-payment by customers, exposes businesses to significant risk.
“Businesses can mitigate this risk with trade credit insurance. This type of insurance covers the business for non-payment by customers, protecting precious cash flow and letting the business operate with confidence.”
Here are six reasons why businesses should consider trade credit insurance in the new financial year:
1. It’s affordable. Premiums are calculated based on a percentage of the turnover combined with the level of risk, so the cost can be much lower than many business decision-makers expect.
2. It offers peace of mind. Doing business with new customers is essential for growth but can be risky if those customers are likely to default on payments. Trade credit insurance makes up the shortfall if that happens.
3. It helps with due diligence. Trade credit insurance providers can conduct due diligence on potential new customers, assessing their creditworthiness and providing advice as to whether the organisation should do business with them or not.
4. Financiers prefer it. Organisations looking to secure finance to expand will be well-served by having trade credit insurance in place, as it reduces risk for financiers.
5. It softens the blows. Factors outside the organisation’s control, such as economic slowdowns or natural disasters, can affect its customers’ ability to pay. Trade credit insurance softens the blow from these situations, letting the organisation continue to operate safely.
6. It lets businesses focus on growth. Trade credit insurance providers can also help collect unpaid debts, leaving the business’s staff free to pursue more valuable activities that grow the business.