The number of overdue debts experienced by Australian businesses has reached a record level, according to the latest NCI Trade Credit Risk Index.
The Index, which forecasts future company insolvencies, has revealed that for the first quarter of 2019, there were 5718 overdue debts across the country between January and March – the highest number ever recorded since the Index commenced in 2012. The 5718 overdue debts is a 12 per cent increase on the number of overdue debts recorded in Q4 2018 (5084), and a 23 per cent increase compared to the first quarter of last year (4631).
Based on data combining insurance claims received from Australian businesses, collection actions and overdue payments, the Index also showed a record number of collections lodged, with the 881 collection actions between January and March representing a 26 per cent increase on Q4 2018 (698) and a 15 per cent increase compared to the same period last year (763).
Overall, the NCI Trade Credit Risk Index for the first quarter of 2019 registered a score of 800, up from 798 in Q4 2018, which signals slightly riskier business conditions for bad debts. Significantly, the number of claims received in Q1 2019 dropped by five per cent, with the total value of claims received coming in at $27.8 million, with an average claim value of $105,000, up from the average claim value of $97,000 recorded in Q4 2018.
NCI Managing Director Kirk Cheesman has said the increase in delayed payments from suppliers and customers to businesses is concerning.
“Customers and suppliers are taking longer to pay their debts, which is putting more pressure on the cashflow of Australian businesses, which in turn impacts their ability to meet their own debts,” Cheesman said.
“It’s been tougher to collect money this quarter, so the risk of non-payment continues to rise in line with the higher proportion of overdue debts. Historically, as these indicators rise, so too does insolvency activity, so Australian businesses could be in for a bumpy ride in 2019.”
Notable business failures across Australia due to insolvency in Q1 2019 include Lempriere Grain, All Commodities, Queensland One Homes, RCR Tomlinson and 2nds World.
“Many businesses were left out of pocket by these insolvencies, so it’s a timely reminder for business owners to review overdue payments and consider altering credit arrangements with customers or suppliers if necessary,” Cheesman said. “Ultimately, though, the best way to safeguard against bad debts is to take out trade credit insurance, which protects your business against customers or suppliers defaulting on payments due to insolvency.”