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Claims rise on the way as trade credit debts spike

Insurance claims for bad business debt are expected to jump in the next few months as companies grapple with worsening trading credit conditions, a broker says.

Trade credit insurance broker NCI says the number of overdue debts increased by 12% over the final quarter of last year to 5718. There were 4631 in the first quarter of last year. Collection actions – businesses taking steps to retrieve overdue balances – increased 26% to a record 881.

NCI MD Kirk Cheesman told the number of claims typically rises in the months after a spike in overdue debts and collection actions.

But they should not be more severe than usual, he says.

The number of insurance claims for bad debt has fallen by 35 to 263 this quarter – which is explained by people being away around the new year.

The value of claims sits at $27.8 million. Average claim value has risen to $105,000 from $97,000 at the end of last year.

A recent survey by trade credit insurance specialist Atradius found 31% of Asia-Pacific businesses expect an increase in late payments this year, particularly for long-overdue invoices. About 47% plan to step up trade credit insurance.

The Atradius survey found only 26% of Australian companies have a strategic approach to credit management, while 71.5% of total business-to-business sales value is on credit.

“It has been tougher to collect money this quarter, so the risk of non-payment continues to rise in line with the higher proportion of overdue debts,” Mr Cheesman said.

“Historically, as these indicators rise, so too does insolvency activity, so Australian businesses could be in for a bumpy ride [this year].”