The business landscape, always dynamic and challenging, has presented a new hurdle for Australian enterprises, particularly in the business to business sector. As we at A&C continue to help SMEs by empowering their journey by supporting clarity into the future, it’s to dissect these challenges and provide actionable insights.
A Troubling Trend in B2B Transactions
Recent data paints a concerning picture: there’s been a significant 48% year-on-year increase in business-to-business (B2B) trade payment defaults. This information, courtesy of the latest CreditorWatch Business Risk Index, highlights the increasing cost pressures Australian businesses face.
External Administrations: A Rising Concern
Compounding this issue, external administrations have been consistently surpassing pre-COVID levels, showing a 25% increase year on year. This trend indicates a deeper systemic issue within the financial operations of businesses.
Invoice Value Insights
Interestingly, while there was a seasonal rise in the average invoice value from January to February (up by 10%), the overall trend is downwards, reaching a low since September. This decline in invoice values, as noted by credit agency CreditorWatch, is particularly alarming.
The Dual Challenge: Payment Defaults and Falling Invoice Values
Patrick Coghlan, the Chief Executive of CreditorWatch, expressed concern over the dual issue of rising B2B payment defaults and falling invoice values. This scenario suggests a depletion of cash reserves and squeezed margins, leading to a domino effect where businesses struggle to pay suppliers, resulting in increased payment defaults.
The Correlation Between Payment Defaults and Business Failures
A striking correlation has been observed between payment defaults and the likelihood of business insolvency. A single default increases the chance of insolvency within the next year to 24%, which escalates to 42% with two defaults, and a concerning 62% with three.
Predictions for 2024
Given these trends, CreditorWatch anticipates an increase in the rate of external administrations throughout 2024, based on the rate of trade payment defaults recorded in February.
A Silver Lining? Business Resilience in the Face of Adversity
Despite these challenges, the latest NAB business survey offers a glimmer of hope. Businesses seem resilient, with an improvement in business conditions and a rise in both trading conditions and profitability.
Empowering SMEs in Challenging Times
In light of these developments, it’s more crucial than ever for SMEs to be vigilant and proactive. At Alexander and Co Consulting, we stand ready to guide businesses through these turbulent times with our expertise in financial forecasting and bookkeeping. Remember, understanding these trends is the first step toward navigating them successfully.
Stay tuned for more insights as we continue to monitor these evolving trends and their implications for the Australasian business market.
