Rates are biting

We know from the latest Dun & Bradstreet data on payment terms that cashflow remains a big issue for SMEs, despite the recovering economic environment. And with last week’s rate rise further adding to the cashflow squeeze, it’s clear that bad debts are going to continue to be a big issue for entrepreneurs for many months ahead.

But today we’ve got a bit more insight into precisely where the potential bad-debt hotspots are thanks to NAB’s monthly business confidence data.

NAB’s survey contained some decidedly mixed news for business. While both business confidence and business conditions fell during the month as higher rates started to hit the economy, chief economist Alan Oster says it’s important to note that confidence and conditions remain above long-term highs.

In other words, there is no need to worry about a double dip recession.

But the data makes it clear where the trouble spots are in the Australian economy, with the retail, construction and transport sectors all recording big falls in confidence during the last month.

If you deal with these sectors on a regular basis, it’s crucial to remain vigilant on the issue of debts by doing the following:

• Thorough credit checks on prospective clients.
• Communicating closely with any clients who are typically late payers so you know when the cash is coming.
• Working with existing customers to encourage early payment (through incentives such as discounts or improved terms of trade).
• Casing troublesome debts very hard, very quickly.
• If in doubt, get some professional help from debt collection agencies.

The business confidence data also showed that trading conditions still remain a bit fragile for many SMEs, with the measures of profit, employment, forward orders and business investment all dipping slightly during the month.

Again, we’re not looking at a return to downturn-like conditions, but business owners do need to recognise that in many sectors the path back to recovery is not going to be smooth.

The big questions mark is still hanging over consumer behaviour. Retailers are doing it very tough at present and commentators are increasingly talking about how consumers have gone on a spending strike.

While this continues, fragile conditions will remain. And with interest rates still rising, right now it’s hard to say exactly when this spending strike will be over.