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Record low invoice values ‘reveal inflation sting’

The latest CreditorWatch data shows small businesses are being hardest hit by rising prices and interest rates.

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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’.”

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Miranda Brownlee
16 November 2023
accountantsdaily.com.au

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Andrew Martin CA

Born in Mansfield in the Victorian high country, Andrew started school in Orbost. After graduating from Melbourne University in 1992, Andrew commenced his career with what was then Price Waterhouse (now PWC). Andrew moved to Bairnsdale in 1995 and has lived in East Gippsland ever since. One of the founders of the practice in 2000, the year GST came to Australia, Andrew is married to Michelle, a third generation East Gippsland resident, and proud father of Nelson and Georgia, who attended local schools for their primary and secondary education.

Andrew and Georgia are keen participants in triathlon and multi-sport events, and in 2022 participated as father and daughter in the Age Group Triathlon World Championships in Abu Dahbi. This year, they will participate together in the Multi-Sport World Championships in Townsville.

As the owner and founder of a business in East Gippsland, Andrew understands the local issues that impact on your business. The impact of flood, bush fires, drought, and the vagaries of world commodity prices can be better understood when you are deeply immersed in the local community.

Dealing with banks and the Australian Taxation Office when you live in a rural area is easier to understand when they happen in your back yard.

Ryan Gaul CA

Ryan, a Chartered Accountant, relocated from Essendon to Lakes Entrance in 2020 to be with his wife, Morgan. In Melbourne, Ryan worked under the guidance of accountant and player manager Peter Jess, serving clients that ranged from small to medium-sized businesses, AFL players, entertainers, and athletes.

After his move to Lakes Entrance, he joined Martin Taylor Associates. Since joining the firm Ryan has enjoyed the challenges of the agricultural sector and has worked closely with Andrew to develop his knowledge in this area.

Ryan is actively involved in the local community. He joined the Buchan Football Netball Club as a player and took on the role of Treasurer. He also serves as the Treasurer for the East Gippsland Farm Dog Group. Ryan’s wife Morgan runs her own speech pathology business which services the East Gippsland region.

Jan Roach

Jan has worked in public accounting in Orbost for 40 years and is one of the founders of the practice. Married to Johno (now retired long-term builder), proud mother of Adam, Paul and Nick and proud grandmother to Owen, Tess, Teagan, and Millie.

Having been in business, Jan understands compliance can sometimes be overwhelming, and will help you navigate the right path. Jan has a strong affiliation with our trade and primary producer clients.

Kerry Ellis

Kerry has worked in administration in public accounting and legal practices for nearly 15 years. Kerry understands when you contact us, you need to talk to someone who has or can get an answer to your query. Kerry controls the workflow in our practice and manages our interactions with the ATO, ASIC and the banks. Kerry understands the challenges of providing information to big bank data centres and dealing with Centrelink.

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