Small business bankruptcy to hit record levels


Australia’s small businesses are feeling the summer heat, with insolvencies at record levels

Australia’s small businesses are feeling the summer heat, with insolvencies at record levels according to one financial consultant.

Greg Charlwood, Asia-Pacific Chief Executive of cashflow finance provider Bibby Financial Services, says businesses are taking longer to pay their bills, pushing up bankruptcy rates.

Dunn & Bradstreet’s quarterly trade payments analysis, released earlier this week, shows businesses averaged 56.5 days to settle accounts in the December quarter, making invoice payments the slowest they have been since 2001.

Big business is often the worst offender, taking more than 60 days to pay bills.

"Deteriorating payment terms puts the cashflow under greater strain for smaller businesses – they still have to pay their staff on time, and with the economy slowing and retail spending drying up, cash flow pressures for many are at breaking point," Charlwood says.

Small business has been under other pressures for the past 12 months, with the global credit crisis prompting local banks to reduce credit availability from early last year, he adds.

"The combination of a longer wait for payment, less availability of credit, and a slowing economy puts cashflow under enormous pressure. We predict it will lead to record levels of insolvency among small businesses this year," he says.

Reports that the International Monetary Fund (IMF) is expecting Australia’s economic growth will slide to almost zero this year add to the gloomy outlook for small business, which is the largest single employer group in Australia responsible for 3.6 million jobs.

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