As Queensland returns to almost normal social and business conditions, we hope to see even more economic activity for our small and medium size businesses, especially those that have been struggling since April.
While we’re seeing the sparks of business recovery, there are warning signs that the coming months will still be challenging for SMEs – especially those with debtors that have been reluctant to pay up on time.
Assistance from the federal and state governments, as well as landlords, has been terrific for most businesses and workers. The stimulus measures and concessions have put cash into the system to maintain economic momentum.
However, as some of these measures begin to scale back, the Reserve Bank has predicted that up to 25% of all SMEs will fail.
Likewise, CreditorWatch figures indicate that there has been a 23% increase in business defaults in September. This is the first increase since May, an indication that the stimulus-driven “good times” are about to end.
The much-discussed “hibernation” or “safe harbour” period for debtors is also coming to an end on 31 December, so one of the more effective debt recovery tools (statutory demands) will be back on the table.
This will bring to an end the notion that Directors and their companies are largely untouchable when it comes the ramifications of not paying their suppliers.
We absolutely accept that many businesses have been genuinely affected by COVID-19, but we have also seen examples of businesses who are thriving during COVID-19 and taking advantage of the notion that they are “protected” by these safe harbour provisions, and often at their suppliers expense, payment has been delayed or entirely withheld.
This hasn’t stopped us constantly communicating with our clients and their debtors – putting in place appropriate repayment agreements for outstanding debts to be paid down.
Extended repayment arrangements are not our “go to” solution, but in the current climate, we have to take the view that for some businesses it’s better that we collect what we can right now, before those companies become a statistic amongst the 25% failures.
We monitor payment histories, available credit and industry sentiment (along with other leading indicators) and we think most SMEs will want to continue trading through to the Christmas period, even if they’re not eligible for JobKeeper 2.0. However, the viability of many of those SMEs will need to be assessed in the New Year.
Even now we are seeing staff redundancies across many industries as business’ eligibility for JobKeeper 2.0 is put the to the test.
There is a clear consensus that January next year will likely see Administrators or Liquidators appointed to many of those companies who are just hanging on right now, and there will be little chance of any further recoveries of any substance once these companies are wound up.
We’re encouraging our clients to make sure they have their ducks in a row now, credit policies in order and action plans in place for non-paying debtors. We believe now is the time to engage with debtors and get payment plans in place.
As always we freely offer advice on how you can also navigate these unprecedented times by taking steps now to secure your hard earned money.