Which industries are defaulting on their debts?

The building and hardware, major steel and labour hire industries are suffering the most from high levels of debt, according to new data from the National Credit Insurance Brokers.

Additionally, an industry expert warns businesses should investigate potential customers and conduct credit checks before organising deals in order to avoid the same catastrophe.

The data reveals a record month for claims against bad debtors, with 143 claims made during July compared to the 90 recorded during July 2008.

The labour hire industry recorded $2.4 million worth of defaulted debts, with the paper/printing industry following with $1.5 million and the building industry third at $1.1 million, which submitted the most claims at 25.

The advertising industry followed with $1.14 million worth of defaulted debts, with 10 claims in July, followed by the major steel industry with $1 million in defaulted debts.

Chief executive of Oxford Funding, Rob Lamers, says businesses need to prevent falling into bad debt by looking for signs in other businesses such as lack of cashflow forecasts, under capitalisation and margin erosion.

“The message here is to plan ahead. I see the next 12 months being very testing, and I think SMEs in Australia are going to find it difficult, particularly when their customers fail. Their fundamental business might be in good shape, but if one customer fails to pay that can have a dramatic impact on their business.”

“Therefore, having a spread of customers is one way to reduce risk. Cost management is always important, so watch your margins, and keep an eye on getting an adequate return. Managing cashflow is critical, and many good businesses fail because they don’t have it.”

Lamers also says businesses are doing themselves a disservice by not investigating potential customers or partners for bad credit histories, saying it is all the more essential during tough economic times.

“Think about things and don’t just make a sale for the sake of it and because it sounds good in theory. Do your background checks, have a completed credit application. Take out insurance or debtor finance too, but do background checks to check the financial stability of your potential customer.”