Concerning SME payment times in one industry putting recovery at risk

According to the latest Business Risk Review from credit reporting agency CreditorWatch, payment times in construction rose by 47 per cent year-on-year in January.

On a monthly basis, construction firms are now on average 44 days late in paying their bills, versus the December result of 35 days.

CreditorWatch noted this as a particularly concerning development and that, should the trend continue, it could cause a multiplier effect across the economy and impact demand in manufacturing, with potentially dire consequences for the many small businesses operating in this part of the market.

To make matters worse, the federal government’s withdrawal of JobKeeper stimulus in March could amplify this trend. 

“Due to the COVID-19 pandemic, the commercial building sector is suffering, which is one of the main factors behind rising payment times across the construction industry,” said CreditorWatch chief executive Patrick Coghlan.

“However, increasing payment times in construction are partly seasonal and, encouragingly, residential construction is booming thanks to government stimulus and low interest rates driving demand in the housing market.”

As for the future outlook, CreditorWatch predicted that next month’s data will begin to reflect more normal trading conditions.

It said while there is potential for the number of companies going into administration and entering into court actions to rise, it doesn’t anticipate this happening until later in the year, especially in light of the six-month delays on credit default swaps and the limited adoption of new structure debt arrangements.

While CreditorWatch did acknowledge that unforeseen events could change this, it also said that, currently, it appears the economy is not headed towards a cliff and there is less likelihood of a tsunami of failed businesses, although there will be some.