Economic caution: Higher than average bad debt claims slows recovery

The outlook for Australia's economy might be improving, but there appears to be no end in sight to the cash flow pressures hitting most SMEs, with a higher than average number of debtors defaulting on what they owe due to insolvency, said cash flow finance specialist, Oxford Funding.

According to the National Credit Insurance Brokers P/L (NCI), claims received against bad debts remain higher than the February average by 38%*. However, fewer claims were received than the same time last year, which was the biggest February on record. In February 2010, a total of 86 claims were made through NCI against debtors who had defaulted.  Worst hit was the building and hardware industry where $945,712 worth of debts was defaulted on, followed by advertising ($638,158) and timber ($433,249).

“Liquidity and access to cash are absolutely critical in an upturn, however these figures indicate that some industries are still feeling the pains from the GFC and are defaulting on what they owe,” said Rob Lamers, CEO of Oxford Funding.

“Depending on which sector of the economy they operate in, it’s still becoming increasingly important for businesses to keep a careful watch on their customer’s ability to pay.”  Lamers said.

“Failure rate for firms with negative cash flow is 213 percent higher** than for those operating with a positive cash position, so if there’s doubt, it’s time to consider implementing strategies that can protect cash flow.”

“There are several strategies businesses can turn to to protect their operations from bad debtors and defaults,” he said. “Product such as debtor finance, which provides up to 80% of an invoice’s face value within 24 hours, as well as debtor insurance where businesses can insure against defaulting debtors for a premium, are two ways businesses can gain more certainty over their cash flow. 

For a copy of NCI's February Debtor Default Report, please contact Caroline Shawyer at caroline@prgroup.com.au or call (03) 9662 2011.

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* Industry average taken from claims between 2004-2009

** Dun and Bradstreet press release, “Paper profits hide negative cash flow”

About Oxford Funding

Oxford Funding, a wholly owned subsidiary of Bendigo and Adelaide Bank (ASX: BEN), is a specialist provider of debtor finance or cash flow solutions to small and medium enterprises. Since its inception in 1994, the company has continued to remain at the forefront of the Australian debtor finance industry due to its flexibility, innovative product portfolio and commitment to best practice service delivery. Oxford is a member of Factors Chain International (FCI). www.oxfordfunding.com.au