Creditors crack down on debt as insolvency level dips

Small businesses have been warned that creditors are coming down hard on outstanding payments and bad debt, following the release of figures that showed an easing in the number of company collapses.

Yesterday, the Australian Securities and Investments Commission published its corporate insolvency figures for the June quarter.

According to ASIC, the number of Australian companies entering into external administration fell slightly in the quarter against a backdrop of relatively high appointments overall.

ASIC senior executive leader Adrian Brown said in a statement the quarterly total was also down compared to the same quarter in 2010-11.

Director-initiated creditor voluntary liquidations increased from the previous quarter (up 16.8%), offset by falls in court liquidations (down 31.9%) and receiverships (down 6.7%).

According to Brown, this was consistent with reports of fewer wind-up applications filed by the Australian Taxation Office in the last part of the financial year.

Of the three larger states, the June quarterly fall in court liquidations was most prominent in NSW and Queensland.

Creditor voluntary liquidations increased in the June quarter in all three of the larger states; most prominently in NSW and Victoria.

Receivership appointments in Queensland remained at their highest level in the quarter above the two larger states of NSW and Victoria.

By state and territory, only Victoria and the ACT experienced an increase in external administration appointments in the June quarter relative to the March quarter (up 10% and 31% respectively).

All other states recorded a decrease, while there was no change in the Northern Territory.

Meanwhile, CreditorWatch data shows a 22.5% increase in defaults in 2012 over 2011, with the construction and building, retail, hospitality and printing sectors the hardest hit.

More worryingly, the value of defaults is also growing, with an 18.5% increase in the average dollar amount of each default registered.

According to CreditorWatch managing director Colin Porter, a lot more creditors are winding up companies due to outstanding payments and bad debt.

“June represented the highest number of defaults registered, plus the highest dollar value of the defaults on record,” Porter says.

“It’s clear that the economy is not as rosy or robust as previously thought. Rate cuts in recent months were a clear sign of official concerns about the economy, and this latest data will only fan the flames.”

Porter says cashflow is more critical than ever for small companies.

“Bad debt can break a small company. This is why it’s critical to do your research before taking on new customers or increasing your exposure to existing ones.”

“This latest data from ASIC is a reminder that companies need to be really vigilant about where they are extending credit, and keeping a lid on debt.”