SMEs bearing the brunt of payment defaults

Key insights from CreditorWatch’s Small Business Risk Review Q1 2017 Report* showed the average dollar value of payment defaults registered with CreditorWatch had a small rise on the back of significant increases over the last five quarters. The peak increase of 206 per cent (Q3 2016) combined with an increase in the number of defaults, has likely resulted in a sharp rise in NSW and VIC court actions within the last six months.

The quarterly report is an analysis of aggregated and trade payment data sourced from over 50,000 customers to highlight risk for Australian businesses.

The last two quarters have seen court actions rise in NSW and VIC with large value court cases possibly occurring in NSW, as evidenced by the gap between actions and dollar amount in Q4 2016 and Q1 2017.

These results are likely a flow on effect from the 206 per cent increase of the average payment default in Q3 2016, as the majority of court actions take place in Australia’s larger states and have a higher chance of occurring within six to 12 months of a default being registered.

Managing Director at CreditorWatch, Colin Porter says, “As reflected in the findings, struggling businesses are more likely to default on less critical suppliers and SMEs six months prior to them defaulting on a corporate or large business who is more equipped with the resources to take legal action against them.

“Anyone in the position of providing credit to an entity that has defaulted on payment with another supplier should be concerned and trade with caution. This doesn’t necessarily mean a business should cease trading but be encouraged to reassess their accounts on a regular basis and monitor all of their customers for important changes that increase the risk of bad debt,” adds Porter.

* https://online.creditorwatch.com.au/rs/713-FXI-767/images/Small%20Business%20Risk%20Review%20Q1%202017.pdf

Inside Small Business

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