Accumulating economic stress, which has been masked by government stimulus support, just broke the surface with an economy-wide surge in late payments.
New data from credit agency Illion confirms the worst fears — that business operators, especially in small businesses, are finding it increasingly difficult to pay bills.
Following a recent string of surprisingly upbeat reports, including improved credit scores among Australian borrowers, the late payment figures go some way towards revealing the level of distortion brought about by JobKeeper and related support programs.
Late payments leapt by 20 per cent in the year to September 30, which is the biggest in at least a decade and comes at a concerning time as historically the three months to September tend to be among the least troublesome periods of the year for credit management.
“We are now seeing an average of 11 days in late payment times and I’m afraid we could easily see that figure roll up to 20 days or more in the months ahead as the crisis evolves — the nature of late payments is that once it takes off, it spreads across all business activity,” said Simon Bligh, CEO at Illion (formerly Dun and Bradstreet).
Non-payment of bills blew out across every sector, including the construction industry, which had been given special attention by the Morrison government.
Late payments are a strong signal of future problems in a business, suggesting operators are responding to a cutback in revenue by delaying the payment of demands from creditors.
“The end result could be a tidal wave of business failures and job losses in early 2021,” Mr Bligh said.
A spike in late payments will be of immediate concern to the major banks where credit levels have been surprisingly stable over the past few months as income support programs clouded the effective level of debt accumulating in every sector.
Chief financial officers and credit controllers will also be among the first to note the new numbers, which may lead to a review of credit terms among many business operators.
The report also challenges continuing reports of a stable picture in certain industries and regions — a report this week from Commonwealth Bank said Tasmania is the best performing economy in the country. However, the new credit figures show late payments across the state blew out by 36 per cent compared to a year ago.
Taken on a quarterly basis the late payments numbers appear more benign with average late payment days worsening by only 1.6 per cent in the three months to September, however the report suggests this is still “a stark contrast with the same period last year when we saw a 9.4 per cent improvement”.
The credit agency also found trouble brewing in the prompt payments score that is used across the business sector — the prompt payment rate fell from 75 per cent to 71 per cent. Moreover the average concealed a strong deterioration in manufacturing and retail where the rate is now at 63 per cent.
As Mr Bligh suggested: “Australian businesses face a grim holiday season ahead as more businesses fail to pay their bills on time … it’s particularly alarming given the gradual end to government stimulus packages during late 2020 and early 2021.”
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