Credit insurance claims surge as sectors suffer
Last month saw a sizeable increase in the number of credit insurance claims, according to a new report, with the engineering, electrical, building and manufacturing sectors identified as the hardest hit.
According to the National Credit Insurance (Brokers), credit insurance claims in May were 50% higher than average when compared to the same period from 2004 to 2011.
The engineering sector was the hardest hit, with claims worth more than $2 million, followed by electrical (more than $1.7 million), and building/hardware (more than $1.4 million).
Other sectors hit hard were “other” steel (almost $1.3 million) and manufacturing (more than $1 million).
Rod Lamers, head of debtor finance at Oxford Funding, says the results come after “relatively sedate” April figures, which indicates some “big events” in the economy have already started to have an effect.
Lamers says recent business collapses, including Hastie Group, St Hilliers Construction and the Reed Group, could see a number of suppliers struggling in those industries in the near future.
The buying arm of electrical retailer Retravision is also on shaky ground, last month going into voluntary administration.
The rise in claims parallels growth in the debtor finance industry, indicating that businesses are seeking to secure cashflow through consolidating their receivables.
According to figures from the Institute for Factors and Discounters of Australia and New Zealand, industry provided $14.7 billion of receivables finance to businesses in the March quarter, up 3.2% compared with the same period last year.
Overall, the industry provided $61.8 billion worth of receivables finance to businesses in the 12 months to March, a climb of 3.8% compared with the 12-month period to March 2011.
According to Lamers, the tightening credit market may have played an additional role in the uptake of debtor finance products.
“Stagnant property prices have made it difficult for businesses to attain more credit,” he says.
“Because debtor finance allows businesses to use the strength of their sales to secure funds, it ensures they can use their debtor ledger to support growth in a sustainable way and avoid overleveraging already exhausted assets such as property, or risk rejection from their lending institution when they request a bigger overdraft.”
“The reason we’ve seen an upswing in businesses employing debtor finance solutions is that this form of finance… enables them to secure their cashflow and provide those funds.”