Businesses across Australia are feeling the pinch following a full year of the COVID-19 pandemic, according to a report by credit insurance firm, Atradius.
The Payment Practices Barometer survey of both large and small businesses looked at B2B customer payment behaviour over the past year. The results are dramatic.
5% of all credit sales were written off as uncollectable, more than doubling the 2% average recorded prior to the pandemic. The same story applies to late payments, 54% of business invoices are overdue (compared to 21% in the pre-pandemic year).
In addition to the economic stressors, these significant increases can partly be explained by a large rise in the number of credit sales. More than 4 in 10 of the businesses polled (42%) reported accepting credit requests far more frequently than they did before the pandemic.
On average it took the construction industry one week longer than last year to settle overdue invoices. Construction businesses reported an overall DSO that is twice as long as last year (now averaging 49 days). 40% of industry respondents expect DSO levels to further increase this year.
A significant percentage of businesses across all sectors pointed to liquidity as one of their greatest concern alongside the health of the global economy. As much as half of the Agri-Food industry believes the domestic economy will drive improvements in their sales and profits rather than export trade.
Perhaps unsurprisingly, 3 in 5 of the businesses surveyed reported an increase in debt management administrative costs. However, many businesses said that the key to navigating the difficult economic climate was agility. For example, as many as 67% 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.
Mark Hoppe, Managing Director for Atradius Oceania, said: “As the customer credit risk environment becomes more challenging with more businesses selling on credit, the insolvency environment is likely to increase. A write off rate of 5% represents significant loss and businesses can put in place measures to protect themselves against the risk of such losses.
“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.
“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.”