8 April 2008
Collection practices under the spotlight
Media Release
There has been a dramatic jump in the number and value of corporate defaults in Australia as the global credit crisis starts to impact local debt performance. And in signs that local businesses are now scrambling to recover outstanding money and improve cash flow, smaller debts are being escalated to formal collection proceedings at much earlier stages.
The research by leading collections and credit reporting agency Dun & Bradstreet, which analyses debt performance throughout 2007, reveals:
- a twelve per cent jump in the number of debts referred for collection between January and December 2007
- a $1400 increase in the average value of debt referred
- a 300% spike to more than $26,000 in the value of debt referred in the Banking, Insurance & Finance sector
- a twenty-three per cent jump in the number of low value debts referred for collection
- Western Australia has the highest average debt value at approximately $9000 while Victoria accounted for the highest number of referred debts.
According to Christine Christian, D&B's CEO, the jump in corporate debts reveals that some businesses are facing significant cash flow troubles at a time when access to cash is of paramount importance.
"The impact of the credit crunch and the tougher business environment is evident in D&B's default trends data," said Ms Christian.
"Both the dollar value and the number of debts referred for collection increased substantially during the back half of 2007, the same time that the credit crisis hit our shores.
"The increase in the value of debts being referred suggests that some businesses are facing significant cash flow difficulties, while the increase in low-value debts suggests that businesses have been forced to chase outstanding accounts earlier in the cycle in an attempt to keep their cash flow afloat.
"It is clear that some businesses let their collections practices slip during good economic conditions and were caught off guard when the cycle began to turn. Now they are running behind trying to make up lost ground."
Industry:
Examing the debt data by industry reveals that the Banking, Insurance & Finance sector had the greatest increase in the value of debt referred, up 300% to more than $26,000.
The Telecommunications industry had the second highest average debt value at more than $11,000 in the December quarter, up 13% since the start of 2007.
The Telecommunications and Utilities sectors consistently referred the highest number of debts for collection. However the Utilities sector saw a greater increase across the year, up by 80% as compared to a 26% jump for the Telecommunications sector.
The average value of referred debt across all sectors increased from approximately $6,400 to $7,800 over the course of the year.
State:
The highest number of debts referred came from Victoria, which saw an 88% increase in debt referrals during 2007. NSW followed with a 19% increase.
Western Australia had the highest average debt value in the December 2007 quarter at close to $9,000. Queensland followed with an average debt value of close to $8,000. Both states incresed the average value of referred debt, with Western Australia up by $146% and Queensland up by 650% over the year.
The findings come as D&B trade payments data reveals that business-to-business payment terms are on the rise. Australian businesses now average 52.6 days to settle accounts. In addition the most recent D&B Business Expectations Survey shows that sixty per cent of businesses expect the global credit crisis to impact their business. For many businesses this means the credit markets are closed and growth plans must be funded out of company cash flow, something that is increasingly difficult as payment terms are further delayed and defaults rise.
"With the credit markets effectively closed businesses are finding it increasingly difficult to source credit to invest in their business. Yet due to poor collection practices many businesses are denying themselves access to their cheapest source of money - their own," said Ms Christian.
D&B risk data reveals that around 7,500 businesses will go into liquidation and more than 4,000 businesses will file for bankruptcy in the 12 months to June 30, 2008.
"With a significant portion of business failures the result of poor cash flow, any failure on the part of executives to improve their collections process could result in irreversible financial difficulty."
For further information, please contact:
Danielle Woods
D&B PR Manager
02 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
