Over 10,000 WA businesses at risk

23/04/2009 - 15:29

Bookmark

Save articles for future reference.

More than 10,000 businesses in Western Australia are at a higher risk of experiencing financial distress within the next 12 months, a Dun & Bradstreet report shows.

Over 10,000 WA businesses at risk

More than 10,000 businesses in Western Australia are at a higher risk of experiencing financial distress within the next 12 months, a Dun & Bradstreet report shows.

 

The announcement is below:

 

Nearly 130,000 Australian businesses have had their risk profile downgraded since October 1, 2008 (the beginning of Australia's first quarter of negative economic growth in 17 years) and are now a higher risk of experiencing financial distress over the next twelve months, according to Australia's leading credit reporting agency Dun & Bradstreet. This is the largest number of businesses that Dun & Bradstreet has ever downgraded in a six month period.

In a further sign of stress in the economy Dun & Bradstreet has also rated nearly 150,000 businesses as being at a higher risk of paying their bills in a delinquent manner since October 1, 2008. This re-rating follows recent Dun & Bradstreet trade payments analysis revealing that business-to-business payment terms reached their highest level in seven years during the March 2009 quarter, showing that cash flow pressures are prevalent in the economy.

The downgrades are a clear sign that the crisis has moved quickly to impact the real economy with the outlook for trade credit - the lifeblood of the economy - deteriorating severely. This in turn is limiting the ability of businesses to trade with each other.

While the downgrades have occurred across the entire nation and all industry sectors, New South Wales, the Northern Territory and Queensland and the electric sector had the highest number of risk and payment downgrades.

Dun & Bradstreet CEO Christine Christian believes the large number of risk and payment downgrades since October 2008 are just the beginning and the outlook for many more businesses is likely to deteriorate over coming months.

"The scale of the downgrades are significant and demonstrate how quickly the deteriorating economy has impacted Australian businesses," said Ms Christian.

"However the deteriorating economy alone is not to blame. Downgrades on this scale are a clear sign that many businesses simply weren't paying close enough attention to risk management and cash flow and these businesses have been caught out by the speed with which the economy has deteriorated."

"The findings suggest that the economic downturn is likely to be prolonged and difficult for many firms, with the spike in payment downgrades evidence that cash flow and liquidity issues will remain a key challenge in the months ahead. The fact that on average more firms have become a higher risk of paying their bills late than actually failing is a clear sign that cash flow will continue to tighten.

Industry

The electric, gas and sanitary services sector experienced the biggest percentage movement in risk downgrades at 22 percent however, the services sector had the largest number of downgrades with the outlook deteriorating for more than 15,000 businesses in this sector.

The forestry, mining and manufacturing sectors also experienced significant downgrades, with 18.3 percent of forestry firms and 16.6 percent of mining and manufacturing businesses increasing their risk of financial distress or failure.

Similar trends emerged in the payment downgrades. The electric, gas & sanitary services sector accounts for the highest percentage (21.7 percent) of firms now expected to pay their trade accounts in a more delinquent manner. Forestry (18 percent) and manufacturing (17 percent) again featured in the top three movers however, the mining sector (15.1 percent) dropped behind the communications industry (15.5 percent).

Meanwhile the finance, insurance & real estate sector maintained its position as the sector with the least movement in ratings - just 5.4 percent of firms in this sector experienced a negative payment re-rating.

State

Although the raw number of firms that were downgraded varied greatly between the states, the percentage difference was minimal demonstrating that the slowdown is a truly national event.

New South Wales, Queensland and the North Territory businesses suffered the largest number of downgrades with more than 10 percent of firms in each of those states suffering a downgrade. In New South Wales and Queensland this resulted in more than 37,000 and 18,000 firms respectively being downgraded.

Victoria had a lower percentage of firms (9 percent) downgraded than New South Wales and Queensland however, more than 29,000 Victorian firms have still suffered a downgrade since October 2008. For Western Australia and South Australia the numbers are 10,604 and 6,499 respectively.

Payment downgrades were also highest in these states with more than 39,500 and 19,500 businesses in New South Wales and Queensland respectively a greater risk of being their bills in a delinquent manner since October 2008. Once again Victoria suffered a lower percentage of firms being downgraded but nearly 31,000 firms are now a higher risk of paying their bills late over the last 6 months.

Ms Christian believes that the expected recession means conditions will deteriorate before they improve and it is imperative that businesses get a clear understanding of their risk exposure.

"Things will get worse before they get better," said Ms Christian.

"Businesses can't stick their head in the sand and hope it goes away. They need to gain a clear understanding of their exposure to both failure and late payments and manage their customers and suppliers accordingly. Failing to do this could be the difference between their own business surviving or becoming a casualty of the current environment."

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options