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Where are the risks? And beware Credit Risk in SBR

Chris Baskerville and Patrick Coghlan meet up again to share a wide range of issues with James Flaherty in this vodcast: This time is all about the trade-off. The risk you take in extending credit, or not paying tax or operating in a risky region or industry. What does all that mean?

Creditor watch has an uncanny ability to predict insolvency, so when people register a default, all too often, the company fails. This week we look a little at the Debtor’s Journey to Insolvency.
 
As we discuss the Monthly Business Risk Index. And we name names. Which regions are worst ‘at risk’? Chris lets us in not a particularly big secret on which place in Australia he relies on as a barometer of the economy or things to come. And which industry sectors are most risky now – maybe not a huge surprise – but some of the reasons and the failure rate are good indicators of what’s happening and what we might expect. With the ATO not as accommodating as they were in the pandemic, is SBR the primary way to negotiate a business tax debt? But not so fast. Patrick outlines the genuine implications that it has on your business credit rating.
 
A little more detail…
 

Patrick Coghlan explains the link when a client registers a default against a debtor – not only does it leave a black mark on the debtor’s credit file; this makes it challenging for the debtor to secure credit in the future. Research also reveals that when a default is registered, there is a 50% likelihood of that company failing within 18 months. This is a powerful tool for suppliers and creditors in collecting and determining the probability of default.

Creditor Watch publishes a monthly Business Risk Index, which shows the default rates.

Chris Baskerville suggested that there could be more options to help restructure the debt when default rates go up. James, Chris and Patrick discussed the high-risk regions and industries identified by Creditor Watch. Western Sydney and Gold Coast Coolangatta… Among the industries, hospitality is the riskiest, followed by transport, posts and warehousing, and arts and recreation. The pandemic-related supply chain issues and energy costs are the reasons for the high default rates in logistics/transport. The group also talked about the ATO’s initiative to register defaults against businesses that owe significant amounts of money, improving the quality of information for credit providers. They also discussed the impact of the end of fixed-rate home loans. Coghlan emphasized that businesses must work collaboratively with their creditors, or else they risk getting a default registered against them and being put under administration or winding up.

Chris and James have been very positive on the development of Small business Reconstruction. Here Patrick makes an important point, SBR is still viewed as a default, and credit is often withheld from businesses that go through the SBR process. What is the solution, more education, more evaluation of what happens to businesses who go through it?

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DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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DISCLAIMER: All content published on this site constitutes general information only and does not take into consideration your personal circumstances. We have used best endeavours to make it as accurate as possible at the time of publication, but be aware information can change rapidly. You should speak to one of our panel members to understand how this information might relate to you.

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James Flaherty

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