Trade receivables plunge to record low

Posted 16 Feb '23

The outlook for small businesses has taken a turn for the worse.

CreditorWatch shows trade receivables have dropped 39 per cent in January, plunging to its lowest point since the agency began collecting the data in 2015.

Trade receivables, also known as accounts receivable, represent the amount of money that a company is owed by its customers for goods or services that have been sold but not yet paid for.

The agency said trade receivables, which measured the average value of invoices, had been sliding since July last year and the 39 per cent drop in January compounded the usual seasonal fall.

Furthermore, business-to-business trade payment defaults have risen 39 per cent year-on-year in a clear upward trend with hospitality the sector most likely to default by a considerable margin.

An upward trend in trade payment defaults refers to an increase in the number of instances where businesses fail to pay their trade creditors on time or at all.

What this means is that small and medium businesses are in for a tough year, with an impact on business confidence, increased financial pressure on suppliers, and potential long-term damage to business relationships.

So how do small business owners survive the storm?

For small businesses, implementing strong credit control measures can be crucial for maintaining cash flow and preventing trade payment defaults.  By putting in place effective credit control measures, you can reduce the risk of financial strain and improve your chances of success.

Here are some strategies for implementing stronger credit control measures for your business:

  • Know your customer: Before extending credit to a customer, it is important to assess their creditworthiness. This can involve checking their credit history, looking up their financial statements, and speaking to other businesses that have worked with them in the past. By doing this research, you can better understand the risks associated with working with a particular customer and adjust your credit terms accordingly.
  • Set clear payment terms: To avoid confusion and disputes over payment, it is important to set clear payment terms from the outset. This can involve specifying the payment amount, the due date, and any penalties for late payment. Make sure your customers are aware of these terms and have agreed to them before providing them with goods or services.
  • Invoice promptly and accurately: Invoicing promptly and accurately is key to receiving timely payments. Make sure your invoices are detailed, including the customer's name and contact details, the goods or services provided, the payment amount, and the due date. Send your invoices as soon as possible after providing the goods or services and follow up with reminders before the due date.
  • Chase overdue payments: When a payment is overdue, it is important to follow up promptly and professionally. This can involve sending reminders, making phone calls, or even seeking legal action if necessary. By actively chasing overdue payments, you can reduce the risk of defaults and maintain healthy cash flow.
  • Monitor your cash flow: Finally, it is important to monitor your cash flow closely to ensure that you have sufficient funds to cover your expenses and obligations. This can involve regularly reviewing your financial statements, forecasting your cash flow, and adjusting your credit terms as needed to manage your risk.

While these measures may require some time and effort to set up, they can ultimately pay off in the form of stronger financial stability and better business relationships.

At Trinity Advisory, we’ve combined our accounting and advisory expertise with our business coaching skills to help you understand your numbers and what drives your business, providing the knowledge and skills you need to pivot quickly to market shifts and take advantage of new opportunities as they present themselves.

If you’re a small business owner who needs advice on better cash flow management, scaling your business and growing your profits, then get in contact today. Our team of expert Business Accountants, Advisors and Coaches are here to help!


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