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?
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?