Australian businesses are feeling the pinch following a full year of the pandemic, according to a report by Atradius, the credit insurance firm, which studied payment practices over that period.
A solid 5 percent of all credit sales were written off as uncollectable, more than doubling the 2 percent average recorded before Covid hit.
As for late payments, 54 percent of business invoices are overdue. This is a big jump from the 21 percent reported for the pre-pandemic year.
In addition to the economic stressors caused by the pandemic and subsequent lockdowns, these increases can partly be explained by a large rise in the number of credit sales. More than 42 percent of the businesses polled reported accepting credit requests far more frequently than they did before the pandemic struck, the Atradius survey found.
"As the customer credit risk environment becomes more challenging with more businesses selling on credit, the insolvency environment is likely to increase, said Mark Hoppe, managing director for Atradius Oceania.
“A write-off rate of 5 percent represents significant loss and businesses can put in place measures to protect themselves against the risk of such losses.”
Liquidity and debt management costs
Looking the construction industry for instance, it took one week longer than last year to settle overdue invoices. Construction businesses reported an overall days sales outstanding (DSO) that is now averaging 49 days which is twice as long as last year. A solid 40 percent of industry respondents expect DSO levels to further increase this year.
Businesses across all sectors pointed to liquidity as one of their greatest concerns alongside the health of the global economy. Further, and perhaps unsurprisingly, 3 in 5 of the businesses surveyed reported an increase in debt management administrative costs.
On the positive side, many businesses said that the key to navigating the difficult economic climate was agility. For example, as many as 67 percent of respondents in the chemicals industry believe the businesses that were most successful in adapting to the pandemic challenges, will more often accept trade credit requests from their customers going forward.
"As businesses look to grow during this time of economic uncertainty, it's important they continue to employ strategic credit management measures such as credit insurance to minimise the risk of payment defaults,” added Hoppe. “This will help protect businesses from the increased risk of customer bankruptcy, help them manage the additional volume of late payments more efficiently and will also facilitate company growth by helping businesses explore new opportunities including extending more credit to existing customers and new customers, and finding new markets to explore."