Payment practices report

June 2021: businesses brace for an insolvency surge

The Atradius Payment Practices Barometer is an annual review of business-to-business payment behaviour. This year’s survey explores a range of topics including payment terms, payment delays, credit sales, and DSO (Days Sales Outstanding), results of which provide a good indication of outlook for businesses in Australia.

Mark Hoppe,

Managing Director for Oceania commented on the report

B2B liquidity support has helped many businesses keep a strong grip on working capital management during the pandemic. However as the customer credit risk environment becomes more challenging over the coming months,

businesses will need to put strategic credit management measures in place to protect their books from the increased risk of customer bankruptcies.”

Introduction

B2B liquidity support has helped many businesses keep a strong grip on trade credit risk management during the pandemic. Due to deterioration of customers' invoice payment trends, businesses in Australia told us they needed to employ internal credit management processes while trying to minimise external financing. However as trade credit risk becomes is expected to worsen over the coming months, businesses will need to continue

putting strategic measures in place.

The Atradius Payment Practices Barometer provides us with the valuable opportunity to hear directly from businesses how they are coping with changed trading and economic circumstances caused by the pandemic. The survey questionnaire was completed by businesses in Australia during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

Our survey findings reveal that an average of 54% of Australian survey respondents' B2B credit sales resulted in late payments. This points to a significant proportion of working capital tied up in overdue trade credit. The longer a debt remains unpaid, the more likely it is to become a write-off. Among our survey respondents an average 5% of receivables were recently written off as uncollectable. Such losses can threaten the viability of a business. Effective invoice debst collection is therefore paramount.

As the insolvency environment is expected to deteriorate further during

the course of 2021, businesses could benefit from taking a proactive approach to minimising the risks of payment defaults. All businesses are at risk, although SMEs are often the least equipped to manage defaults as they tend to have smaller cash reserves. To minimise risk, businesses should tighten their credit management processes to protect themselves from potential customer insolvency. Care should be taken to look at whole supply chains to avoid any potential domino effects, where one insolvency leads to others in the chain.

Key survey findings for Taiwan

  • Three in five of the businesses polled (60%) incurred increased debt management administrative costs during the pandemic
  • 2021 already showing signs of an insolvency surge
  • Almost one third of the businesses polled (30%) expressed concern about economic conditions over the coming months.
  • Australian businesses expect and upward trend for DSO and nearly a quarter anticipate issues with maintaining adequate cash flow due to deteriotation of trade credit risk.
  • 53% of the businesses polled in Australia believe that selling on credit to B2B customers will be more common over the coming months as a short-term financing tool for customers.

Interested in getting to know more?

For a complete overview of both payment practices and trade credit risk trend in Australia in the local agri-food,

construction, chemicals/pharma , please download the complete report.

If you have any questions about protecting your receivables send us a message so we can try and address your specific needs.

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