Data revealed by a non-bank lender that debtors are delaying payments as access to credit becomes more difficult and the state of the economy worsens. According to the lender, the credit crunch is beginning to bite, with enquiry levels rising to 40% and invoice payment timeframes exceeding a month.
In the aftermath of COVID, their SME clients were delaying in making payment and having more difficulty managing cash flow as debtors waited longer to pay and access to credit became more difficult. The average number of days receivable is gradually lengthening during the past six months. Which could be due to SME’s limited financial reserves, debtors are becoming more choosy about which creditors to pay first.
As a result, the number of days outstanding is increasing. The average number of days has increased to 38 from 31 on average at the start of the year. The average amount owed by a debtor for the lender’s clients varied between $35,000 and $40,000, some of which have half a dozen debtors with that level of debt outstanding.
Although the whole economy was affected, the construction sector and importers/distributors were at the forefront of the issue. The termination of pandemic assistance programs, the restart of ATO debt collection, the rise in inflation, and supply chain concerns had all resulted in a major tightening of liquidity in the economy over the previous six months.
Now that the government guarantee has ended, banks have returned to their pre-COVID credit underwriting procedures. Throughout the whole economy, access to finance is become far more difficult, the lender claimed. There were 35%-40% increase in financing enquiries during the past 2 months, 9 out of 10 of the enquired businesses have outstanding tax debt. Therefore the lender has to conduct more thorough assessment of each application, they have to check the size of the applicants’ tax obligations. There was a bunch of zombie firms that should have collapsed during COVID but just stayed on because JobKeeper was getting paid, and they'll fall over pretty rapidly.
How to manage cashflow during the current economic situation?
1) Get a cashflow forecast calculator;
2) Establish an effective receivable procedure, including customer onboarding, credit assessment, sales and invoicing, and debt recovery;
3) Issue invoices at the earliest convenience;
4) Reduce credit terms offered to customers;
5) Sending payment reminders and final notice to customers on time;
6) Proceed to debt collection ASAP for delinquent debts.
Are you struggling to get paid from customers? Contact Xservice Debt Collection for a free assessment. Our experts could evaluate your situation and provide a customised debt collection strategy to recover your debt. If your customer is not paying invoices in Australia and you are seeking an active debt collection agency to help you get the money back, do not hesitate to give us a call. Proud of our success rate and customer service quality, we are committed to responding to all enquiries within the same day – no later than 24 hours during business days.