CreditorWatch’s tips to avoid insolvency risks

CreditorWatch has released a ground-breaking report titled ‘Safeguard your Business from Insolvency.’ The findings have sent shockwaves through the economic landscape, revealing a concerning surge in insolvency rates across critical sectors.

According to the report’s in-depth analysis, industries such as construction and retail trade are experiencing alarming spikes in insolvencies. CreditorWatch’s authoritative Business Risk Index highlights a dramatic upswing in external administrations, rebounding to pre-COVID levels after a slight pandemic-induced decline. The forecast is even bleaker, with an ominous default rate projected to reach a staggering 5.8 per cent, surpassing the tumultuous levels of early 2020.

Patrick Coghlan, CEO of CreditorWatch, is sounding the alarm, urging businesses to prioritise insolvency risk management. He warns of impending challenges, driven by the impact of the Reserve Bank of Australia’s 12 cash rate increases, which are expected to take full effect by September 2023.

The transition of about 40 per cent of households from fixed to variable interest rates, coupled with persistently low consumer confidence, could trigger a surge in external administrations. Nonetheless, Coghlan acknowledges the resilience of Australian businesses that have invested strategically in technology and streamlined operations to bolster their defences during these uncertain times.

To empower businesses and credit professionals, the report presents insights from industry experts like Australian Institute of Credit Management (AICM) CEO, Nick Pilavidis; Cathro & Partners Principal Andrew Blundell; and GM Advisory Services Director, Ginette Muller. These experts share invaluable strategies, advocating for proactive risk management, early warning signs detection, and robust measures to safeguard businesses from insolvency.

Pilavidis stresses the need for a focused approach in four key areas: people, processes, communication, and security. Investing in accounts receivables, collections, and risk management, alongside engaging Certified Credit Executives (CCEs), can yield optimal results in protecting businesses.

Blundell sheds light on the vital task of recognising early warning signs of insolvency, enabling businesses to avert potential disasters. By closely monitoring indicators such as cash flow stress, working capital strains, and accounting irregularities, credit professionals can respond proactively to mitigate risks.

Muller offers a roadmap for businesses to navigate through the uncertainties when a customer faces insolvency. The guide emphasises making strategic decisions between litigation and negotiation and ensuring prompt payment of outstanding invoices.

CEO, Nick Pilavidis; Cathro & Partners Principal, Andrew Blundell; and GM Advisory Services Director, Ginette Muller. They discuss strategies to avoid risk of insolvency, including proactively managing risk, being aware of early warning signs of insolvency and ways to protect businesses from insolvent customers.

Pilavidis outlines four key areas businesses can actively shape to minimise risk exposure: people, processes, communication, and security. He recommends investing in accounts receivables, collections and risk areas, with a Certified Credit Executive (CCE) where possible, as they achieve better results in safeguarding businesses from insolvency.

Blundell notes that understanding the early warning signs of insolvency can also help credit professionals avoid risk. He explains the signs of cash flow and working capital stress, including deteriorating performance, accounting irregularities, insufficient capital expenditure, dividends exceeding performance and multiple management resignations.

Muller discusses the process to undertake if a customer appears to be spiralling into insolvency, in order to protect your business. This includes deciding whether to pursue litigation or negotiation and to ensure your outstanding invoices are paid by this customer. Muller also explains the types of payment agreements to pursue.

“There’s a question mark over when certainty will come back to the economy, but with the right tools, businesses can navigate the period ahead and come out the other side stronger.”

CreditorWatch’s ‘Safeguard your business from insolvency report 2023’ is now available in full here: https://creditorwatch.biz/3Q2BnTV.

Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.