Debt relief? Small business recovery remains slight

While Aussie businesses are making small strides towards recovery, new data reveals many continue to struggle with overdue debt. 

Figures from digital credit agency CreditorWatch released this week show that fewer businesses defaulted on credit last month - July’s default figure was 13% lower than in June. July also saw companies take a shorter time to repay any money owed, with an average 8% decline in payment times recorded across the board. 

But CreditorWatch’s chief executive officer, Patrick Coghlan said these signs of improvement are modest at best. For one, payment times were still a staggering 224% higher last month than in July 2019.

“While at first glance, a decrease in business administration, defaults and payment times seems to indicate green shoots appearing in our economy, we should be cautious,” Coghlan said. 

“Payment times remain high, indicating significant cash flow issues, whilst the number of companies going into administration is far below the monthly average we would expect, telling us that many firms are being artificially propped up.” 

In other words, thousands of insolvent (or near-insolvent) businesses have managed to survive, thanks to government stimulus including the extended Jobkeeper scheme. For the fourth month running, business administration rates remained low, falling by about 12% in July.

According to Coghlan, this growth in ‘zombie companies’ - those being kept out of administration artificially - is an issue. 

“Policy makers need to consider the gradual easing of measures to ensure good money is not being thrown away on bad companies,” he said.

Payment times: best and worst

In terms of which sector saw the shortest payment times last month and which was the most heavily impacted by COVID-19, here’s what CreditorWatch uncovered:

• The best performing industry was mining, with payments just eight days overdue last month. It’s the only sector to do better this July than last, observing a 43% year-on-year drop in payment times.
• The worst performing industry was ‘transport, postal and warehousing’ with payments 90 days overdue last month and no improvement from the month before. For this sector, payment times in July 2020 was a whopping 429% higher than in July 2019.

How to stay on top of business debt

At some point as a business, you may have either taken out a loan or used the company credit card. While it can be scary knowing that your business has debt hanging over its head, there are steps to help get its finances back into shape:

1. Look at the big picture: Whip out your financial records and calculate exactly how much you owe and to whom. It may be worth getting expert help from an accountant or a business adviser. The government’s business website has a handy tool that lets you search for advisers in your state.
2. Prioritise your IOUs: Once you have a handle on your debts, devise a strategy on how to pay them off. One method might be focusing on secured debts first, since those have higher stakes (for instance, you could lose any personal assets that you’ve put up as collateral). However since every business’s situation is different, it’s always a good idea to consult an adviser before making any moves.
3. Follow up on invoices: Still have customers who owe you money? Now’s a great time to send them a reminder and get hold of that income ASAP for your own debt repayments. 
   
4. Contact your creditors: Next, get in touch with your bank or supplier. Explain your circumstances and see if you’re able to figure out a repayment plan or an extended deadline that’s more realistic for you. Most lenders should also have a financial hardship policy, which may include support measures such as deferred loan repayments and waived fees.

If you’re feeling financially stressed, Australia has a range of free financial counselling services which you can easily access via phone. 

Our guide on everything you need to know about coronavirus and your finances also provides further information on what relief options are currently available to small businesses.