Record low invoice values ‘reveal inflation sting’
The average value of invoices has dropped by a third in the past 12 months and external administrations are up 81 per cent, according to the latest CreditorWatch Business Risk Index.
Its October data revealed the lowest average invoice value since the credit bureau began tracking the figure in January 2015, and said it signalled a drop in forward orders which could cause a ripple effect down the supply chain.
It said B2B trade payment defaults saw a slight improvement from September but are now consistently above pre-pandemic levels after rising on a trend basis since the cash rate began its upward climb.
“Businesses are now forced to direct more of their cash towards loan repayments and at the same time continue to grapple with unavoidable running costs that continue to rise, such as electricity, gas, fuel and insurance,” it said.
“In some cases, this is resulting in insufficient cash to pay all suppliers each month. It tends to be the smaller, non-essential suppliers who are reporting trade payment defaults.”
CreditorWatch chief executive Patrick Coghlan said the RBA’s attempts to curb inflation with interest rate increases were hitting businesses hard as consumers curtailed spending.
“Consumer demand is one of the key drivers of the economy and that is coming to a grinding halt as cost-of-living pressures bite,” he said.
“Costs of rents, electricity and fuel are all still very high despite the RBA’s best attempts to drive down inflation. Mortgage holders are suffering from increased loan repayments as well.”
The drop in the average value of invoices and the increase in B2B payment defaults gave a very clear picture of what businesses are going through at the moment, he said, adding that the drop in order values meant revenues and margins were also being squeezed through inflation.
“That is causing an increase in the number of businesses that are unable to pay their invoices to suppliers – and that is a real worry because those defaults greatly increase the chance that a business will not survive into the future,” he said.
“All the data is pointing to another challenging Christmas trading period so it is prudent for businesses to follow up on outstanding debts before then.”
External administrations also continue to rise with an 81 per cent year-on-year increase to October.
CreditorWatch chief economist Anneke Thompson said the increase in interest rates was impacting smaller businesses the most.
“SMEs are more susceptible to changes in demand than bigger businesses and, on the personal side, many owners will have rising home-loan repayments to service, which may involve them having to remove more money from their businesses and reduce orders from suppliers where possible as a result,” said Ms Thompson.
CreditorWatch predicted the business failure rate would significantly increase from the current 4.21 per cent up to 5.78 per cent over the next 12 months.
“This is in part because we are coming off a period where there has been an unusually low rate of business failures, but also the steep decline in consumer spending on discretionary items, which will impact many marginal smaller businesses,” the credit agency said.
“The ATO is also pursuing unpaid tax with more vigour, and there are many businesses that still owe significant amounts of GST following the end of COVID-19 payment ‘holidays’.”
16 November 2023