Research conducted by credit bureau Illion published in their Commercial Insight Report for July 2023 suggested that the economic landscape for businesses might worsen in 2023 due to an increase in overdue trade invoices and debt collection.
As business solvency faces pressure from declining revenues and escalating costs, the risk of business failure is on the rise with limited signs of immediate relief.
In light of these challenging circumstances, finance brokers have the potential to advise their business clients on navigating the current high-risk market.
By understanding and advising on the diverse offerings that are available to assist struggling business owners, financial brokers can provide substantial value. It’s good practice for you to understand the options.
Industries such as food services and construction are particularly vulnerable, with rising living costs and interest rates impacting businesses’ ability to meet their debt obligations. Illion’s data published in their Commercial Insights Report reveals that a notable portion of businesses in high-risk sectors are either substantially overdue or late in fulfilling their trade payment commitments, with some lagging behind by over 60 days. Notably, Illion’s data indicated the food services and construction sectors in Australia exhibit the highest risk of failure, followed closely by retail services and transport.
The head of modelling at Illion, Barrett Hasseldine, noted:
“This recent rise in overdue trade payments can also be seen in vulnerable construction businesses (…) and is likely to be attributed to the fall in cash flow from rising building supply costs and contract labour costs coinciding with fixed contracted project revenues.”
Commercial finance brokers can play a pivotal role in assisting these struggling businesses. By offering tailored solutions, brokers can help businesses overcome cashflow constraints and limited access to funds. The suitability and efficacy of these solutions varies based on each business’s unique circumstances, cash flow patterns, and industry forecasts.
In our view, where a company is wound up, it is often a ‘lose-lose’ situation for all concerned. For the business owner, the business closes and the business assets are sold, and the process is largely out of the business owner’s control. Unsecured creditors fare badly as well. Data released by the Australian Financial Security Authority revealed that, of the 9,359 bankrupt estates finalised in 2021–22, unsecured creditors received an average of 2.23 cents for every dollar they were owed.
The data can be seen at:
https://www.afsa.gov.au/about-us/statistics/annual-administration-statistics/rate-return
A Different Way?
Is there a different way of approaching the financial difficulties that businesses face in this difficult climate? Is there an approach where the assets of a business are not necessarily sold, and the unsecured creditors may receive more cents on the dollar?
Solve My Debt Now has an alternative, holistic solution for businesses in trouble. Our debt relief solution aims to achieve any or all of the following outcomes for businesses:Negotiating with creditors for reductions and waivers in debts based on the current business circumstances.
- Negotiating with creditors to reduce or suspend payments on interest.
- Negotiating creditor payment plans within your estimated budget to make paying back business debts manageable over time.
- Where successful, avoiding a 5-year black mark on a business credit file in contrast to the outcome of insolvency.
- Where successful, avoiding a black mark on a director’s credit file for 10 years in contrast to the outcome of insolvency.Minimising contact between the client and the creditors where possible .
- a holistic business debt relief solution that is an alternative to immediate insolvency.
The insights you provide your clients at a difficult time in their business may be key to navigating their business challenges.
Though the economic terrain may seem daunting for an at-risk business, by providing clients with your specialised expertise, personalised guidance, and access to a diverse range of information, , you may help to guide them through their difficulties by offering tailored solutions for sustainability and growth.
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