Has anyone else noticed the weather conditions recently in Australia have been unseasonal and changing? Droughts, snap cold fronts, storms and heavy rains has confronted many parts of Australia.
I can also feel changes in the business climate and conditions relating to trade credit risk.
A decade ago to the month, a major storm brewed around the globe leading to the Global Financial Crisis (GFC). Whilst those storm clouds rolled in quickly and had a major impact globally, the rumblings of future storms this time has been more subtle. However, they are brewing.
NCI is in a unique position to gauge a number of key elements relating to trade credit business conditions. Collection activity, credit limit approval rates and reductions by insurers, overdue reporting and claims activity. This data forms part of our quarterly trade credit risk index.
However it's the word of mouth and the underlying feeling of credit managers, which has me questioning, what may be on the weather map for 2019?
Comments recently have outlined tougher trading conditions and difficulties in collecting money which is raising eyebrows. Having experienced credit managers stating collections are the toughest they have been for some time, is perhaps the best indicator of what's to come.
However, it also matches the NCI average claim statistics which have been increasing over recent months. At the height of the GFC, NCI were experiencing on average 125 claims per month. In 2014/15 this dropped down to 83 claims. In October 2018, it jumped back up to 118 received claims. It is the volume of activity, not so much the severity of the insolvencies, which is building.
The recent insolvency of RCR Tomlinson is a big reminder of how substantial ASX listed businesses with a long trading history, can hit the wall. A business that seemed to be trading well, impacted by solar farm contracts, met its demise in November 2018 leaving many unsecured creditors out of pocket, and being touted as the largest insolvency in WA since Forge Group. Fortunately, many of the suppliers hold trade credit insurance and will receive recoveries through their insurers for unpaid debt.
It is an important reminder that no matter how comfortable you may be with ‘blue chip’ customers, insolvency could occur at any stage leaving your business exposed to a potential bad debt.
In the case of RCR, the ripple effect of creditors not being paid will cause further failures to occur over time. A trade credit insurance policy can act as a circuit breaker to the domino effect.
Many businesses do not question the fact that plant, machinery, stock and equipment need to be insured. However in most cases the customer receivables of a business (the life-blood of their cash flow) are quite often their largest asset.
The start of the New Year should be a trigger for businesses to consider their weather pattern outlook for the upcoming year, rain hail or shine…
National Credit Insurance Brokers
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