Business insolvencies tend to spike in January and 2017 is unlikely to be an exception. We found out that Australian businesses are set to experience a two per cent increase in insolvencies in 2017. The spike is often because businesses struggle to make sales after the Christmas peak and therefore may be late in paying their bills, or may fail to pay at all, lifting the general level of bad debt.
The Christmas period is a double-edged sword: retailers and other consumer-facing businesses usually see a peak in sales over Christmas, which turns into a lull afterwards as people struggle with the post-holidays hangover. In turn, suppliers who were in demand before Christmas often find that demand dying off in the New Year.
The net result is a solid blow to many businesses’ cashflow. For many, that can mean the business can no longer operate. Going out of business due to bad debts is a bitter pill to swallow. But companies can protect themselves against bad debt with trade credit insurance.
While February will mark the end of the holiday period, businesses will still be under pressure to perform in a difficult environment. GDP growth for Australia this year is expected to be 2.8 per cent, which is a slight drop from the 2016 rate of three per cent. Export growth is also likely to almost halve, and China’s economy remains in question. The combination of domestic and international conditions will mean more businesses face insolvency.
To avoid going out of business entirely, many companies pass on payment delays to their own creditors. While this can keep the company operating for a little longer, it can also damage its relationships with other trading partners and, especially, financiers.
Most companies experience ups and downs during the year but the Christmas and New Year period can be particularly difficult. As a result, many companies will be glad to see the calendar flip over from January to February so they can get back to business as usual.
We recommend that business as usual includes investigating trade credit insurance. Having a policy can let businesses trade confidently and can help identify at-risk buyers, which lets the business focus its energies on the high-value customers that are most likely to pay in full and on time.
Mark Hoppe, Managing Director – ANZ, Atradius