Credit managers increasingly positive, but pressure points remain
Demand for trade credit is growing but competition is fierce, according to the 2018 National Credit Managers Survey from Equifax
Sydney, Australia: 17 October 2018 – Optimism amongst credit managers in Australia continues to grow, with 58 per cent expecting future economic conditions to have a positive impact on businesses – up slightly from 56 per cent in 2017.
Competitive influences continue to be strong, with one third (33%) of credit managers reportedly experiencing pressure to extend credit even when adverse information was present, most commonly because of the need to increase sales (45%).
Released today by Equifax, the 2018 National Credit Managers Survey assesses the status of credit management in Australian organisations.
The annual survey, conducted in June 2018, reveals that credit managers are increasingly positive about future economic conditions as demand for credit grows. The majority (60%) of credit managers experienced an increase in credit applications over the past 12 months, compared to 37 per cent in 2017, while only 12 per cent experienced a fall.
Neil Shilbury, General Manager, Commercial & Property Solutions at Equifax, said that the survey findings were overwhelmingly positive, reflecting sound overall economic conditions in Australia.
"We've seen a significant swing towards optimism from credit managers, both when considering broader economic conditions and individual portfolio management," Mr Shilbury said.
"The optimism isn't surprising when viewed against the backdrop of the macro-economic climate. Business confidence is favourable, unemployment continues to trend downwards, and GDP is edging higher. In addition, interest rates remain low despite some slight upward movements, and concerns around the potential severity of the property downturn may have subsided. Positivity amongst credit managers reflects these factors.
"The only dark spot for credit managers is the increase in competitive pressure, which seems unlikely to abate in the near future. In a strong market where credit losses are low, it can be harder for credit managers to refuse applications and protect their business from bad debts," Mr Shilbury added.
The majority of the 302 credit managers who participated in the 2018 survey were from the manufacturing, finance and insurance, construction and wholesale trade industries.
In response to the optimistic outlook, there has been a loosening of the reins in regard to financial management. Fewer organisations have increased their collections activity (27 per cent in 2018 versus 66 per cent in 2017) and fewer have tightened their credit activity (23 per cent in 2018 versus 49 percent in 2017).
In the coming 12 months, 27 per cent of credit managers say they plan to tighten collections activity (vs 61% in 2017) and 22 per cent plan to tighten credit activity (vs 53% in 2017).
"The survey also revealed that credit managers continue to prioritise collection activity for customers with the most money outstanding over those who seem at highest risk of failure. This may be due to the difficulties often encountered when chasing high-risk customers, compared to customers who have borrowed more money but have a better payment history," Mr Shilbury said.
Despite the uptick in optimism, most credit managers remain pragmatic when it comes to securing their exposures. According to the survey, more than two-thirds (67%) of respondents had registered on the Personal Property Security Register (PPSR). Of these, 20 per cent were not confident their registrations were correct, leaving a significant portion of exposures at risk.
More than half (55%) of the businesses registered on the PPSR said they will need to renew their 7-year registrations, made at the inception of the PPSR, before they expire in or around January 2019.
"Overall, credit managers have expressed a positive sentiment about market conditions and are managing their portfolios accordingly."
National Credit Managers Survey by Equifax 2018 Key Findings
- 58 per cent of credit managers expect a positive impact from general economic conditions over the next 12 months, up from 56 per cent in 2017 and 31 per cent in 2016
- The demand for credit rose for 60 per cent of respondents, up from 37 per cent in 2017, while demand for credit fell for 13 per cent of respondents, down from 26 per cent in 2017
- Fewer than one in three respondents expect to further increase or tighten their collections activity in the next 12 months
- More than two-thirds of respondents had registered on the PPSR (67%). Of these:
- 65% are confident all their PPS registrations are correct
- 20% are not confident their registrations are correct;
- 15% said they were unsure
- Of those respondents who had not registered on the PPSR, the reasons cited included:
- It was not applicable for their business to do so (37%)
- It would not be beneficial to the business (32%)
- They don't understand the value (11%)
- The cost is prohibitive (7%)
- By industry, the proportion of respondents who registered on the PPSR was highest for manufacturing, followed by wholesale trade.