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With EOFY approaching, now is the time for businesses to check their financial health.
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Business default rates to hit 5.8% – or higher, says CreditorWatch
10 June 2022
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Small businesses need to be prepared for a turbulent future with CreditorWatch forecasting default rates rising to around 5.8 per cent in the next 12 months and the potential for inflation and interest rates to push it even higher.
The forecast rise would take Australia back to pre-COVID levels after defaults fell below 5 per cent during the pandemic due to government support.
CreditorWatch chief executive Patrick Coghlan said that as measures such as mortgage holidays from bank lenders and temporary moratoriums on insolvent trading start to lift, businesses that had previously been protected would begin to feel the full impact.
Mr Coghlan said that now was the time for small businesses to plan for the future.
“It’s vital that small business owners use this time to analyse their business, identify opportunities or improvements, and make a strong plan for the year ahead,” he said.
With no assurance of a smoother future they are being encouraged to do a stocktake of their financial health and the state of those they do business with.
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Convener at Insolve James Flaherty said that businesses need to know who their trading partners are and how best to protect themselves.
“Particularly in areas such as construction, where the industry is experiencing a period of extreme volatility, it’s crucial that businesses understand exactly who they’re trading with and the stability of those partners,” said Mr Flaherty.
As well as the construction industry, CreditorWatch data showed hospitality, arts and recreation and transport, postal and warehousing as those sectors most likely to default on payments.
A principal lawyer at Macpherson Kelley, Prue Greenfield, said the ATO was ramping up its debt collection post-pandemic and businesses needed to be on top of their finances for the coming financial year.
“We’ve seen the ATO step up its debt collection with the volume of Director Penalty Notices and credit referrals increasing substantially following the easing of COVID-19 restrictions,” she said.
“It’s important for businesses to remain on top of their game as this activity continues to ramp up, as excessive tax debts can indicate impending collapse.”
To try to assist businesses to combat these factors and grow into the next financial year, CreditorWatch has launched an End of Financial Year Survival Guide.
The three main points that the guide focuses on are, review – meet your EOFY obligations, protect – gain control and protect your business, assets and cash flow, and grow – plan for future growth.
The EOFY Survival Guide explains how to make the most of the tax breaks this financial year, how to best set up a business for the coming financial year, and how companies can create a financial plan to help predict future risks to the business.
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