CreditorWatch Business Insights

Monthly data update - RBA’s wrestle with inflation has a few more rounds to go

Managing Director of Open Analytics, James O'Donnell, joins CreditorWatch's Head of Content, Michael Pollack, to unpack the latest data on business credit risk. The numbers show a deterioration in business conditions and home owners coming under increased mortgage stress. Subscribe [https://creditorwatch.com.au/businessriskindex/#subscribe] to the CreditorWatch Business Risk Index for free and receive the results in your inbox every month.

How keeping up with customer changes can save your business

Join CreditorWatch's Dominic D'Andrea, Key Account Consultant and Paul Mead, PPSR Specialist, as they take you through the ins and outs of portfolio health checks, how to identify risky customers and how to protect your business. Customer details change. They move address, their business name changes, their credit rating drops or increases, and sometimes even close shop. Changes to a customer’s details may change their level of risk, so you need to act accordingly to minimise your exposure. How are you keeping up to date with all the changes across your customer base? See how you can quickly keep up to date with changes across your entire customer database with CreditorWatch [http://www.creditorwatch.com.au]. You can also subscribe for free to the CreditorWatch Business Risk Index [https://creditorwatch.com.au/businessriskindex/#subscribe] to get the results in your inbox every month. No spam!

Business Risk Index May 2023: Key business indicators show conditions worsening; NSW Central Coast area suffers biggest YoY jump in business risk

Several leading indicators in the May 2023CreditorWatch Business Risk Index [https://creditorwatch.com.au/businessriskindex/](BRI) show Australian businesses are coming under increasing pressure. External administrations, B2B trade payment defaults, court actions and credit enquiries are all trending sharply upward as Australian businesses grapple with rising interest rates, high inflation, decreasing demand and declining forward orders. CreditorWatch Chief Economist, Anneke Thompson’s view is that the RBA is unlikely to consider lowering interest rates until at least mid-2024, given core inflation remains stubbornly high. The index results are consistent with other economic indicators such as the NAB Business Confidence Index, which is showing an accelerating decline in trading conditions. On a regional level, the Business Risk Index data for the past 12 months has revealed that three of the five biggest movers down the index are all adjoining – Wyong, Gosford and Lower Hunter. Key Business Risk Index insights for May: * External administrations dipped from March to April due to seasonality but are now up 35% YoY. * Court actions also dropped in March due to seasonality are now up a 50% YoY. * Credit enquiries are up a massive 85% year-on-year as businesses become more nervous about the health of their trading partners and tighten credit policies. * B2B trade payment defaults up 31% YoY, with Food and Beverage Services the number one ranked industry for probability of default by a considerable margin. * Merrylands-Guildford and Canterbury, in Western Sydney, remain the worst performing regions in Australia for default rates. * Casey-South in Victoria has entered the top 10 worst performing regions for the first time with a projected default rate of 7.00% over the next 12 months. * Unley in South Australia is the region with the lowest insolvency risk (across regions with more than 5,000 businesses), followed by Norwood-Payneham-St Peters, also in SA. * The rate of external administrations in the construction industry continue to trend upward – sitting at their highest point since June 2020. * The rate of external administrations in the Healthcare and Social Assistance sector, while still low, has more than doubled over the past 12 months. Subscribe for freeSubscribe for freehere [https://creditorwatch.com.au/businessriskindex/#subscribe]to receive the monthly Business Risk Index results in your inbox on the morning of release. No spam.

Business Insights - May 2023 - Inflation moves past peak but areas of concern remain

Sign up for free monthly CreditorWatch data insights here [https://creditorwatch.com.au/businessriskindex/#subscribe]. CreditorWatch Chief Economist, Anneke Thompson, and Director of Open Analytics, James O'Donnell, discuss the latest CreditorWatch data insights on Australian businesses and the outlook for the remainder of 2023. Hosted by Michael Pollack, Head of Content at CreditorWatch. Data released over May 2023 continues to point to slowing in retail spending by Australian consumers as well as continued pessimism on future spending intentions. Business confidence has also registered a below average result with business conditions deteriorating, although still well above long term averages. There are also early signs that the jobs market is about to get more difficult for employees, as the seasonally adjusted unemployment rate rose from 3.5% to 3.7%. TRANSCRIPT Hello and welcome to CreditorWatch Business Insights. I’m Michael Pollack, Head of Content at CreditorWatch and today I'm joined by Anneke Thompson, CreditorWatch’s Chief Economist and James O'Donnell, Director of Open Analytics. Welcome James, welcome Anneke. James Thanks Michael great to be here. Anneke Thanks Michael. Michael So, we're looking at our monthly Business Risk Index insights as well as what's going on in the broader economy. James, could you take us through what you're seeing out there in terms of business conditions and what the business risk index data has been saying? James Sure thing, Michael. In general, we're seeing that insolvencies, court actions and B2B trade defaults are continuing to pick up. Particularly insolvencies, we've seen particularly in some industries quite a bit of acceleration in the number of external administrations. At the same time, we're seeing an increase in B2B trade activities. That’s measured by the trade receivable data that we see a CreditorWatch. Although, I put the caveat there that potentially some of that is not driven by actual increases in trade activity. It's more about the costs of things going up, so inflation is no doubt contributing to those figures. Michael Okay. Anneke, do you have anything you want to add there? Anneke I'd say it's probably not surprising that we're starting to see an increase in business insolvencies, given we had much lower than normal insolvencies throughout the COVID period. So, there's sort of a natural catchup. But as James mentioned, there's certainly some industries that are being hit harder and are seeing quite accelerated levels of insolvencies. They're mainly construction, followed by the food and beverage sector as well. Michael Sure. So, James touched on the fact that we're seeing a rise in trade receivables, the average cost of invoices coming through is increasing. But on the other side of the coin, we're seeing consumer demand and business confidence declining. So, what can we attribute this scenario to Anneke? Anneke Well certainly consumer confidence is lower than it's ever been. Probably the only time where it's been at similar levels was the GFC. But even then, it picked up much quicker than it's picking up now. So, it's been low for since about September last year and it's stayed low. What I would say about the increase in trade receivables is, while we think inflation peaked in December, that was mainly attributable to goods inflation and fuel. But services inflation is actually increasing and if you think about the invoices that our customers send each other, there often in the services sector. So, prices in that category are still lowing up and it's a bit of a cause for concern from the RBA, and certainly one of the reasons why they lifted the cash rate after the May meeting. Michael Sure. So, if inflation has peaked then what's your view on the timing for the RBA getting things back to their inflation target of two to three per cent? Anneke I think it's still going to take a fair amount of time. I wouldn't expect it to be in the 2 to 3% range even next year, we may not be getting there until about 2025. We've still got supply side pressures. Rent is one of the inputs into the inflation basket and that obviously is increasing at a really alarming rate, and with the amount of houses that we're forecast to build going forward, there doesn't seem to be any let up there. Another worry is energy pricings, we're going to see a pickup in energy pricing in September quarter. In some ways Australia is really behind the curve here, Europe and the US saw increases in their energy prices over the last couple of years - we're sort of playing catch-up. There's a couple of factors there that’s still pushing inflation along, even though we're seeing inflation of price rises ease in household goods, clothing and footwear; sort of normal goods that consumers are spending less money on now. Michael Those power prices are definitely having a massive impact aren't they. We saw unemployment lift slightly by two points this month, to 3.7%. What can we read into that number Anneke? Anneke I’d definitely say that we've seen past the trough of unemployment, I highly doubt from here on in that we’ll get back down to three and a half percent. Two reasons, obviously net migration has been very strong, so we're filling a lot of the jobs that are available, particularly in the hospitality sector. Secondly, particularly once we enter the new financial year, we’ll see a lot less hiring activity and I think there's a lot of businesses out there who'll start to circle the wagons, shore up their finances, and probably take a much more conservative outlook to headcount growth. I don't think we're going to see mass layoffs just yet. We're not at that part of the economic cycle, but the hiring frenzy that we've been on in the last two years is very much over. Michael Okay, interesting. So, let's take a look at industry data from the Business Risk Index. A lot of the data obviously is showing an increase in insolvencies, back to pre-COVID levels in some cases, like construction that's actually exceeded pre-COVID levels. What’s your outlook there James, in terms of industries? James Michael, the industries that we sort of have a watch on if you like, and monitoring closely are really anything related to hospitality. I think more generally, discretionary spending driven industries like hospitality, arts, and recreation accommodation. The gap between them and other industries in terms of default and insolvency rates has increased. Of course, construction, which has had a lot of commentary by ourselves and the media, there’s still big challenges there. I'd say they are the key areas to keep an eye on. Michael Sure. Anneke, what would you like to add? Anneke I agree with James. I will add, the food and beverage sector has actually been one of the sectors in terms of retail trade that that has been going along quite nicely. April was the first month we saw a decline in the food and beverage sector, which was the first time since we've been released from lockdown. So, it's sort of the early signs that, although conditions in that sector have been pretty good up till now, I think Australians are now starting to pull back their spend in that area. And I agree with James, once they see lower demand and coupled with high energy pricing, higher wages, costs and other key inputs in the restaurant sector, they're certainly going to be feeling the pain over the next year. Michael People are definitely tightening their belts aren't they? James, obviously through your work at Open Analytics, you work with a lot of banking clients. What are you seeing from them in terms of the outlook for trading conditions. James Sure. I can separate that down into the major banks and the non-bank lending world. At the big banks, I'd say the general consensus is that there's still concern around interest rates. We’re starting to see on business lending portfolios and mortgages, that default rates are starting to tick up; they were very low in COVID but they're definitely climbing. The consensus is the effect of the rapid rate rises basically haven't come through yet. There’s generally a bit of a lag between rate rises and the effect on things like mortgage defaults. Big banks are bracing themselves for more defaults in that space. In the non-bank lending world, there's some interesting trends there, including challenges with start-ups and newer clients obtaining funding. So, there's generally a sort of caution. Again, likely linked to inflation and interest rate rises. A lot of non-bank lenders are struggling to get funding in a lot of sensors, so it's quite challenging for startup lenders in Australia at the moment. Michael Thank you both for your time today, that was really interesting and thank you everybody for listening. We will be discussing the economic outlook again with James and Anneke next month. Thank you both for your time. Anneke Pleasure. Thanks for having me, Michael. James Thanks, Michael. Michael If you would like more business insights from CreditorWatch, check out our business risk index page at creditorwatch.com.au/businessriskindex [http://creditorwatch.com.au/businessriskindex]. Thank you once again for listening and we'll see you next month.

Are your customers riskier than the industry average?

How would you like a free resource that tells you how risky your customers are compared to the industry average? Well here it is. In this episode we hear from James O'Donnell, Founder of Open Analytics and creator of the CreditorWatch Portfolio Risk Benchmarking Report. This free report from CreditorWatch allows you to compare the riskiness of your customer base against four key measures: 1. Credit Ratings (CreditorWatch RiskScore) – creditworthiness of entities in your portfolio. 2. Geographic Risk – risk related to the location of your customers. 3. Business Maturity – how long your customers have been registered businesses. 4. Business Type – based on criteria such as private/public/sole trader/GST registration status. If you are a commercial lender or have a business with a turnover of at least $250 million, you can request a copy of the report here [https://go.creditorwatch.com.au/product/portfolio-risk-benchmarking-report/%20%20].