Data confirms troubling trend in SME space

by Madison Utley12 Nov 2020

While new data has revealed the majority of Australian industries are reporting a drop in payment times, the rate remains too high for them to survive the withdrawal of government stimulus measures, says digital credit reporting bureau CreditorWatch.

The group’s October Business Risk Review showed 14 of 19 industry groups recorded a decrease in payment times in the month, with many industries reporting consecutive month-on-month falls.

However, CreditorWatch CEO Patrick Coghlan explained that while these figures indicate businesses are beginning to generate cash flow again, payment times on average remain 157% higher than October 2019.

“Falling payment times and administration rates would ordinarily be considered encouraging signs because they indicate that Australian businesses are generating the revenue they need to survive. However, the fact that payment times remain so high above their 2019 levels gives the game away, while falling administration rates show that government stimulus packages have created a backlog of companies holding on to survival,” Coghlan said.

“When this support is withdrawn next year, we expect many of these businesses to shed their camouflage and shut up shop because they do not have the cash flow to survive on their own two feet.”

Further, external administrations fell 26% from September to October, cementing a troubling trend; in the March 2020 quarter, the number of administrations was only 4% lower than in the March quarter of 2019, but in the 2020, that figure shot up to -35%.

By the September quarter, it had swelled to -50%, strongly suggesting government stimulus is supporting thousands of businesses that are not viable in the long term.

As such, Harley Dale, CreditorWatch chief economist, said the outlook for the economy is more “finely balanced” than RBA Governor Lowe and other leaders have made it out to be.

“One only has to look at the recent earnings from the Big Four banks to see how tough it is for large corporates, let alone SMEs that are perceived as the lifeblood of our economy. These companies are still struggling to collect cash and make payments quickly, indicating that they are still at the cliff edge and may well fall as soon as government support is withdrawn,” he elaborated.

“Rather than handing out more money to keep failing companies afloat, policy makers should be encouraging them to wind down while creating a safety net to help those that lose their jobs. Otherwise, a sudden wave of insolvencies could quickly derail any economic recovery and put us further away from consistent national growth,” Dale finished.