Australian SME businesses exposed to credit risks

Findings of our October 2011 Payment Practises Barometer indicate that despite Australia's relatively stable economy, our large companies and our $100-billion manufacturing industry have increased due diligence around trade credit for additional protection from supply chain insolvencies.

The study shows Australian businesses were more cautious with international trading than their pan pacific neighbours, a reaction that may be limiting business growth. The survey results showed Australian practice is more risk averse when it comes to international trading, with only 15 per cent of all respondents providing credit for international trading, and 64 per cent of businesses stating they would offer no credit at all for international trades. This could be an indication of Australia's concerns about risks associated with international trading, which could be limiting a business' natural growth potential.

Insolvency figures in Australia have been steadily rising over the last 12 months. According to recent ASIC figures, 1,049 companies entered external administration in August 2011, up 14 per cent from 921 in July, and 20 per cent higher than the 870 in August 2010.  At the same time the survey showed that the SME business community has left credit terms and due diligence at the same level as last year and David Huey, Managing Director of Atradius in Australia and New Zealand, says this indicated a lack of risk awareness in practice.

The results generally indicated a sound awareness of the need for credit practices and protocols but some small and medium sized companies still have to be more alert to the dangers their trading partners' liquidity levels can pose, particularly when payment practices start to become problematic.

John Sutherland, Head of Risk for Atradius in Australia, New Zealand and Asia said the survey results indicated basic buyer diligence was more profound in Asian countries than on home turf.

"Asian countries were found to have significantly increased their use of monitoring buyer risks, using secured forms of payment, and checking a buyer's creditworthiness, however Australia's appetite for such credit risk tools showed no rise in activity," explains Mr. Sutherland.

"This may explain why 62 per cent of Australian businesses cited 'insufficient availability of funds' as the reason behind export payment delays, but only some 48 per cent of Asian businesses experienced this."

The survey covered 194 Australian companies and more than 5,200 companies from 27 countries.

Read more findings on Atradius Payment Practices Barometer.

Back to December 2011 Atradius ezine articles summary