Australian Economy Enters a New Phase

With the financial year end approaching, businesses of all types turn their attention to financial matters, and for AMPAC’s client’s, most often – it’s the state of their debtors.  The 2023 Financial year will bring with it a series of challenges which point directly to the credit and financial management function within a business.

In the coming months, cash flow is likely to become tighter for many businesses and individuals due to rising interest rates and other obvious cost of living pressures, together with labour force shortages and supply chain issues.  These factors are likely to be compounded by the ATO’s well publicised resumption of debt recovery activity, which will see a gradual increase in both corporate and personal insolvency rates.

Below is a brief summary of key areas to watch in our economy in the new financial year.

Australian Economy

Welcome to the high inflation and rising interest rate era.  Higher interest rates are great for the ‘savers’ in our economy, but credit managers and debt collectors rarely need to speak to them.  It’s all the other businesses and individuals carrying significant debt that we usually end up dealing with.  Many borrowers in our economy have never known anything other than record low interest rates, so the adjustment to a more normal interest rate environment will encourage increased saving instead of spending, and in turn, contribute to easing inflationary pressure.  During this period of adjustment however, additional financial stress will be placed on those who are highly geared.

The cost of living is steadily rising, not just in Australia, but around the world.  The rising prices of oil, petrol, groceries and other essential items (most of which is outside the Government’s control) will continue to place pressure on businesses and households for some time to come.  As prices rise, many of these increases are passed on to consumers, thereby contributing to further inflation and increased cost of living pressure.

Staff shortages and wage pressures are at the top of the list of issues most influencing business confidence leading into the new financial year.  Industry sectors and job roles impacted most severely by staff shortages include construction, manufacturing, accommodation, health, food, administration and support.  At the outbreak of the pandemic, nearly 600,000 temporary visa holders left Australia and with the hard border closures that followed, there was no inbound supply of workers to off-set the exodus.

It will take years to replace the workers who left Australia at the beginning of the pandemic, and continue to hold back economic growth for years to come.

Staff shortages and wage pressures are at the top of the list of issues most influencing business confidence leading into the new financial year.  Industry sectors and job roles impacted most severely by staff shortages include construction, manufacturing, accommodation, health, food, administration and support.  At the outbreak of the pandemic, nearly 600,000 temporary visa holders left Australia and with the hard border closures that followed, there was no inbound supply of workers to off-set the exodus.

It will take years to replace the workers who left Australia at the beginning of the pandemic, and continue to hold back economic growth for years to come.

During March and April of 2022 the ATO issued warnings to many thousands of company directors, encouraging them to actively manage their business tax debt and engage with the ATO, or face the likelihood of the ATO taking action.  These actions include disclosing debts to credit bureaus, and potentially issuing company directors with a Director Penalty Notice (DPN).  Under the director penalty regime, company directors may become personally liable for a penalty equal to the value of their company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid when due. 

The ATO’s increased activity may well be the primary driver for rising insolvency numbers in Australia in the months ahead.  This is supported by a notable increase in the volume and urgency of inquiries received by insolvency professionals in recent months, and although they are not converting to insolvency appointments as yet, it is a clear sign that the ATO’s letter is having the desired effect.

The message to the credit management community is that whilst certain economic headline numbers may look good, there is no doubt the pandemic caused a major disruption to the normal functioning of our economy, the full effects of which are yet to be felt.  At AMPAC and Shield Mercantile, we are seeing a gradual increase in the numbers of referred debts, but a significant increase in the value of these debts.  This tells us that many clients have held on to overdue debts longer than in pre-pandemic times.  For unsecured creditors, this puts them at a disadvantage when the ATO and other secured creditors recommence a ‘business as usual’ approach to receivables management.

Our advice to unsecured creditors, is to closely examine overdue debt, and take action earlier in the collection cycle to ensure they are at the front of the queue for payment. 

If we can assist in any way, either with advice about your approach to credit management, credit documentation or, more directly with debt recovery, please email us at sales@4ampac.com.au or call us on 1300 426 722.

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