Commercial credit risks in Asia Pacific

Is your next deal a risky one? Assess your strategy with Commercial Credit Services.

Is your next deal a risky one? Assess your strategy with Commercial Credit Services.

Getting paid for the goods and services you provide should be the logical conclusion to any business transaction. However, things don't always go as planned, which is why commercial debt collection becomes necessary. But just how good or bad are Australian businesses at paying each other?

According to the Atradius Payment Practices Barometer from November 2014, maintaining adequate cash flow was the number one challenge to business profitability in Asia Pacific, with 35.6 per cent of respondents identifying this as an issue. This is particularly significant in Australia, where almost 50 per cent of B2B transactions were made on credit terms.

This highlights the need for credit management policies, but also sheds some light on why commercial debt recovery could come into the picture. According to the Australian Securities and Investments Commission (ASIC), 43 per cent of insolvencies last year were mostly due to cash flow issues. Not only do you want to avoid finding your business in the same position, but you need to make sure your business partners are not at risk of this either.

The same report by ASIC highlights that 35.3 per cent of failed companies had deficiencies of more than $500,000 - that's a lot of money that you could be owed if your buyer goes bang! Returns to 97 per cent of unsecured creditors in 2013-14 averaged lower than 11 cents in the dollar. This highlights the need to do proper background checks on new customers, as well as limiting trade until a track record has been established. These vital pieces of the puzzle are things that Commercial Credit Services can help you with.

In terms of how long Australian businesses take to pay their accounts, according to the Payment Practices Barometer, our local businesses perform pretty well compared to the rest of Asia Pacific, with an average payment period of 23 days. In fact, 81.7 per cent of businesses paid up within 30 days, while 15.5 took up to 60 days and less than three per cent took more than 61 days.

If your books look like they're skewing towards the upper end of the payment days spectrum, you might want to give Commercial Credit Services a call. We can help you figure out where the issues lie, and address them with better credit management, or commercial debt recovery. We can even go through the process of debt collection litigation with you, using our in-house solicitors, Aston Reid Lawyers.

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