Finance

Concern for start-ups as bad debt claims leap

Emma Krieger /

Small businesses have been urged to clamp down on late payments following a spike in bad debts claims in February.

 

New figures from National Credit Insurers (Brokers) reveal that there were 77 bad debt claims in February, up 80% on January’s total.

 

The number of bad debt claims in February is 17% higher than that month’s average between 2004 and 2010 – a period that contained the global financial downturn.

 

However, the number of bad debt claims in February was lower than the corresponding month in 2009, when 129 claims were made.

 

The steel sector outside of major steelworks had the highest debts of any industry, worth more than $850,000, while debts in the manufacturing and plumbing sectors also suffered, with debts exceeding $650,000.

 

Rob Lamers, chief executive of debtor finance firm Oxford Finance, says it is too early in the year to judge if small firms are suffering a deepening debt crisis, but adds that start-ups need to tighten up their processes.

 

“It’s only the second time since late 2009 that there’s been an increase in bad debts on the previous month, which may represent a slow January,” he says.

 

“Businesses need to be wary of customers’ ability to pay. Historically, Australian businesses haven’t focused on the credit quality of customers, they’ve focused on the sale instead.”

 

“By supplying goods and giving customers 30 to 60 days to pay, you are effectively giving them credit. Businesses that value every single sale need to put an emphasis on the ability of customers to pay.”

 

“Waiting for payment can cripple cashflow. Make sure you have the right cashflow tools and make credit checks. Get debtors to pay early and negotiate terms with your own suppliers.”

 

Lamers says that he expects conditions to improve during 2011.

 

“There’s still a way to go before we get to pre-GFC conditions, but the general sentiment is that there will be improvement throughout 2011,” he says.

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