Credit ratings agency Dun & Bradstreet says it has downgraded the risk ratings of nearly 130,000 Australian companies in the past six months, and now says these businesses are at increased risk of failure.
D&B chief executive Christine Christian says it is the largest number of firms that her agency has ever downgraded in a six month period, and says the downgrades are a clear sign the outlook for trade credit has deteriorated severely and the ability of businesses to trade with each other is being damaged.
As well as the re-rating of company risk profiles, since the start of October 2008 D&B has also rated nearly 150,000 businesses as being at a higher risk of not paying bills on time. Data from D&B released last week showed trade payment terms have blown out to 57.6 days.
“We’ve never seen anything like this before, and the findings seem to suggest that the economic downturn is likely to be prolonged and difficult,” Christian says.
“The spike in payment downgrades shows that cashflow is a huge issue, and I think cashflow will continue to tighten.”
Company risk and payment ratings are compiled using 147 different bits of data, including defaults, collection notices, payments, financial statements, and director information.
The data shows that companies in the electric, gas and sanitary services sectors, the forestry sector and the mining sector are struggling the most.
“Companies are not paying enough attention to risk management, and they are not paying enough attention to cashflow.
“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.”
Register now for SmartCompany’s free webinar on cashflow, to be held on 22 April at 2pm AEST. Christine Christian and SmartCompany editor Amanda Gome will discuss tips and advice to help you Get That Cash in the Door.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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