Invest
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed.
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed.
Stats collated by CreditorWatch show that business activity is improving, with 15 out of 19 industry groups having reported a reduction in time it takes to pay their bills.
The top-performing sectors in December were agriculture, forestry and fishing, mining, accommodation and food services, and public administration and safety.
Despite improving conditions, CreditorWatch believes COVID-19 outbreaks such as Sydney’s Northern Beaches cluster could derail business recovery.
“The reduction in payment times reflects better economic conditions at the end of 2020. However, lockdowns and border closures at the end of the year due to COVID have the potential to stymie this,” said CreditorWatch CEO Patrick Coghlan.
Despite the risks for businesses, the CEO remains optimistic about a potential recovery.
“But there’s a lot of potential for a quick recovery, similar to that experienced in the middle of 2020 when the original lockdowns were removed. Sectors such as accommodation and food services could demonstrate a strong comeback when existing restrictions and border closures are put to bed.”
Administration rises post-government support
Despite improving payment times for business, external administrations were up by 23.4 per cent in December, following a rise of 4.4 per cent in November. But annually, they have dropped by 32.4 per cent.
However, CreditorWatch points out that much of the fall is due to the temporary moratorium on insolvent trading, which ended on 31 December.
CreditorWatch believes the number of companies entering voluntary administration is likely to rise through 2021, notwithstanding new provisions that give smaller businesses until 31 March 2021 to negotiate with their creditors to allow them to devise a plan to continue trading and work out their debts.
CreditorWatch chief economist Harley Dale says although insolvencies are likely to rise this year, business failure – even for firms with mounting debts – are not a given, and there are plenty of opportunities for struggling outfits to resolve their issues.
“It is yet to be seen whether the pattern of insolvencies will be orderly, sporadic or volatile, but it appears we are not headed for a steep cliff of business failures, which are likely to take time to feed through the system. What’s key is for businesses to work with experienced advisers and start to negotiate with creditors now. That’s going to be the best way to continue trading even through difficult economic periods. Insolvency is not inevitable,” he said.
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