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Australian Business Insolvencies at 3.5 Year High: What You Need to Know
As the cheap money era comes to an end, banks are becoming less forgiving of distressed corporate borrowers. This, coupled with rising interest rates, a cooling economy, and the Australian Taxation Office’s crackdown on company directors for unpaid tax debt, is driving more businesses to the wall.
Business Collapses on the Rise:
These numbers paint a grim picture. This represents a three-and-a-half-year high, and 15 per cent above the pre-Covid average of 720.
Construction firms, including high-profile casualties like Porter Davis, have been by far the hardest hit, with 1601 insolvencies in the financial year to date. Other industries affected include accommodation and food services saw 808 insolvencies, other services (480), retail trade (373) and manufacturing (347).
The Need to Flush Out Zombie Businesses
The challenges in getting finance and securing funding for business is becoming more difficult at all levels.
While this may sound like doom and gloom, experts argue that it’s important to weed out unproductive so called “Zombie” businesses that don’t make money, don’t pay taxes, and don’t pay their suppliers. It could be argued that these zombie businesses should have failed pre-Covid but were kept alive because of moratoriums, unprecedented government stimulus payments such as JobKeeper and cash flow support, near-zero interest rates and banks temporarily waiving repayments.
These businesses are an unproductive drain on the economy. What the economy needs are businesses that do well, employ people, pay taxes, pay superannuation, and invest in research and development.
The Hangover of the Past Decade
Some experts see the rise in insolvencies as a correction back to pre-Covid levels, but others see it as a consequence of the excess of the past decade where underperformance was being cured relatively easily without fundamental changes. Banks, creditors, shareholders, and financial sponsors are less willing to extend debt and equity funding to businesses now that economic conditions are tougher, and liquidity is tighter.
Speeding Up the Cash Cycle with Cash Flow Finance
So, what can you do to secure your business future when the belts are being tightened? One solution is to turn credit sales into cash quickly, which can be achieved by utilising Cash Flow Finance.
Cash Flow Finance also known as Factoring enables businesses to access the cash tied up in outstanding customer accounts, allowing them to meet operating expenses, pay ATO obligations, and pay wages on time, thereby turning around cash flow woes.
Conclusion
The Australian economy needs to weed out unproductive businesses and keep the productive ones. While the tightening of economic conditions is causing short-term pain, it’s necessary to ensure the long-term health of the economy. To stay ahead of the game, businesses need to speed up their cash cycle, and Cash Flow Finance can help them do that. BCashFlow Positive is a leading Cash Flow Finance provider, we can help businesses access the cash they need to stay afloat and thrive in these challenging times.
To find out more, contact BCashFlow Positive on 1300 937 292.
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