New findings unveiled today by credit bureau illion reveal a concerning surge in overdue trade invoices and debt collection, signaling a potential downturn in business conditions for Australians throughout the remainder of 2023.
The impact is particularly pronounced in sectors such as ‘retail,’ ‘food,’ and ‘construction,’ which appear to be at heightened risk.
The research, conducted through illion’s exclusive trade payment program, delves into trade invoice data, shedding light on the financial landscape. It highlights a troubling trend wherein businesses operating in high-risk industries face a mounting percentage of overdue trade payments compared to previous years. This suggests that these businesses are increasingly grappling with unpaid or significantly overdue invoices.
A detailed analysis of the data underscores the precarious position of various sectors. ‘Food services’ and ‘construction’ industries stand out as having the highest risk of failure, with rates of 14 percent and 11 percent respectively. The ‘retail services’ and ‘transport’ sectors closely follow, both carrying a 10 percent risk of failure.
Conversely, industries such as ‘financial & insurance services,’ ‘professional & technical services,’ and ‘wholesale trade & manufacturing’ exhibit a notably lower risk of business failure, with rates ranging from 3.5 to 4 percent.
A visual representation further highlights the disparity in payment behavior between high-risk industries and their low-risk counterparts. Invoices issued within the past three months in higher-risk sectors, like ‘construction’ and ‘food services,’ are significantly more likely to remain unpaid for extended periods compared to those in low-risk sectors such as ‘professional services’ and ‘financial services.’
This discrepancy is striking, reaching up to 60 percent higher in the case of ‘construction’ versus ‘professional services’ and even tripling in the ‘food services’ versus ‘financial services’ comparison. The data underscores the susceptibility of the ‘food,’ ‘retail,’ and ‘construction’ sectors to financial strain, potentially stemming from rising costs and decreased sales.
Barrett Hasseldine, Head of Modelling at illion, emphasized the gravity of the situation: “When we focused on high-risk businesses, irrespective of their industry sector, the research found that 57 percent of all outstanding trade invoices were over 60 days overdue in March 2023, many times higher than the overdue rate across all Australian businesses, which is only around 6 percent.”
Furthermore, the research illuminates a worrying trend for high-risk businesses within the ‘food services’ and ‘retail’ sectors. Over the past six months, these sectors have experienced a substantial deterioration in trade payment behavior. The percentage of substantially overdue trade payments has surged to over 62 percent in the ‘food services’ industry and reached 68 percent in the ‘retail’ sector.
Hasseldine suggested that these trends could be attributed to a post-Christmas decline in revenues and escalating operational costs for retail businesses, encompassing expenses like rent, power, and inventory. A similar dynamic is observed in the ‘construction’ industry, with a rise from 29 percent to 42 percent in overdue trade payments between September 2022 and March 2023. This phenomenon is potentially linked to diminished cash flow due to escalating building supply and contract labor costs, which coincide with fixed contracted project revenues.
Adding to the concerning outlook is the simultaneous surge in debt collection activity. Notably, the construction industry has experienced a threefold increase in daily collections activity in the first quarter of 2023 compared to the previous nine months. Similarly, the ‘retail’ and ‘food services’ sectors have seen a 75 percent rise in collections activity. This surge contrasts with the stability observed in the ‘Professional Services’ and ‘Financial Services’ sectors.
While economic shocks of 2023 have undeniably impacted Australian businesses, an underlying trend of heightened failure risk has been discernible for over a year. Vulnerable businesses have experienced a gradual decline in trading behavior, which has been further exacerbated by recent shocks. As a result, illion’s research paints a bleak picture of the business landscape for the remainder of 2023, particularly for the ‘food,’ ‘retail,’ and ‘construction’ sectors.
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