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Winter edition 2013
NO NEW JOBS
The employment outlook is at its lowest point since the GFC
Consulting on cash flow
Australian Government releases a
discussion paper on late business payments
Stress levels ease as
Consumers’ focus on savings driven by
Payment times indicate
poor financial health
Australian businesses are taking 54 days to
pay their invoices
constraints for MSMEs
The role of bureaus in reducing information
asymmetry and increasing credit access
1 – D&B insight
Opportunities abound for well-managed companies
In the current economic environment, which is
plagued by mixed data, it’s easy to understand
why many believe the economy is taking one
step forward and two steps backward.
These mixed results have been evident in
the most recent round of data releases from
the Reserve Bank of Australia, the Australian
Bureau of Statistics and in our own commercial
and consumer analysis.
The latest credit statistics reveal marginal
growth, with a 0.4 per cent increase over June
in total credit provided to the private sector.
Housing credit increased by the same amount,
while other personal credit increased by just
0.2 per cent and business credit by 0.5 per cent.
While it’s pleasing to see some growth,
the expectations of businesses reveal that
significant and sustained growth remains
some way off. Australian businesses are telling
us that their preference is to use the low
interest rate environment to pay down debt,
rather than take on additional credit to grow
their business. In fact, just eight per cent of
organisations are likely to seek finance for this
purpose during the September quarter.
Australian households are taking a similar
approach, continuing their focus on saving
rather than spending, and like the credit story
for businesses, this attitude is unlikely to
shift in the near term, particularly given the
unemployment rate has ticked up slightly
over recent months. The benefit to this de-
leveraging of household balance sheets is a
reduction in financial stress, as demonstrated
by our Consumer Financial Stress Index,
(see page 9) and a reduction in personal
insolvencies as compared to the June quarter
last year. Conversely, this focus on savings has
obvious flow-on implications for businesses
and this is continuing to show through in our
Business Expectations Survey.
Expectations for sales have trended down
over the course of 2013 and profits expectations
have followed a similar pattern, declining
sharply following the Christmas period
and flat-lining over recent quarters. Capital
investment expectations have also taken a hit,
falling from an index of 15 points at the start of
the year into negative territory.
Cash flow is another issue that has
consistently posed a challenge for businesses
this year and is often a key cause of insolvency.
The latest trade payments data for Q2 this year
reveals that companies are taking an average
of 54 days to settle their accounts, which is flat
from the previous quarter and one day slower
than a year earlier.
With all of this data in mind, the statement
that follows will likely come as somewhat of
“Now is the time for businesses to stop
bunkering down and instead seize the
opportunities that exist.”
This statement does, however, come with
a caveat. Only the businesses that have
maintained an unwavering focus on the
fundamentals of effective risk assessment and
cash flow management will be in a position to
take advantage of the opportunities available.
These companies will be better able to
weather whatever economic conditions come
our way over the remainder of 2013 and into
the New Year. And with the Reserve Bank
indicating that our below trend economic
growth will continue at least in the near term,
the strength of their cash position will provide
a buffer against slow sales.
These companies may also be able to
leverage their cash position to pursue
acquisitions. Or, in the event their cash position
requires an uplift to achieve this outcome,
they can undoubtedly seek credit (and in a low
A register reform
A timely reminder for businesses
about the PPSR
Consulting on cash flow
Australian Government releases
discussion paper on late business
The Kiwi comeback
The business risk conditions of
Australia’s economic neighbour
are on the up
Businesses say no
The employment outlook is at its
lowest point since the GFC
Stress levels ease as
Consumers’ focus on savings driven
by unemployment worries
decisions: the new data
Payment times indicate
poor financial health
Australian businesses are taking 54
days to pay their invoices
constraints for MSMEs
The role of bureaus in reducing
information asymmetry and
increasing credit access
Small business, big credit
Small firms are too big to ignore
when it comes lending opportunities
Winter edition 2013 – 2
marketing list and then assess it against
their existing portfolio, and credit risk and
This approach will allow businesses
to ensure their marketing is targeted at
organisations that have a good customer
profile. Characteristics of such organisations
include the potential to be high-profit
customers (as is determined by the profile of
existing high-profit clients), low credit risk and
Importantly, there is also a message
for those businesses that have room for
improvement in the management of the
fundamentals. Start today. Develop risk
mitigation strategies and processes, and
implement critical disciplines around
receivables management and collections.
Next, take the time to examine your
existing customer book as you will want to
avoid any nasty surprises. There is a wealth of
data available that will enable you to acquire
an accurate and up-to-date profile of your
existing customer base so you can focus your
attention on those customers that are at risk of
becoming poor payers.
For those businesses that have effectively
managed their operations through an
extended period of below trend growth and
global turbulence, it’s time to take advantage
of your position and seize the opportunities
that exist. For others, it’s time to make the
change and get your fundamentals in order.
Chief Executive Officer
Dun & Bradstreet, Australia & New Zealand
Cash flow is the lifeblood of every
business, yet many executives struggle to
keep it under control.
Gareth Jones shares his insights on
good cash flow management.
1. Develop a cash flow projection and
ensure you monitor and update
2. Minimise bad debts with an established
credit assessment procedure.
3. Establish an accounts payable policy at
the outset of every credit relationship.
4. Establish a deposit policy for work
5. Monitor your customers’ use of credit
6. Closely manage your invoice process
and collections practices.
7. Rearrange annual payments such as
insurance so you pay small instalments
frequently. This will help to smooth
out lumps in your cash flow cycle.
8. Select an appropriate source of
funding for your requirements and pay
the debt before the interest kicks in.
9. Use short term cash surpluses wisely,
don’t keep them in accounts that
don’t pay interest.
10. Conduct a credit check before
extending credit to ensure a
potential customer has a history of
interest rate environment) given their solid
For a company that’s held tightly to the reins
and effectively managed through the GFC, the
right opportunity may exist in the form of a
company under pressure in an industry that
holds long-term growth potential.
Additionally, these companies are better
placed to acquire customers from their
competitors, and while all the data tells us that
consumers and businesses are spending less,
they are still spending.
Taking advantage of these opportunities
and gaining the maximum benefit available
will not be a simple task. It will require the
same focus on the fundamentals that enabled
these companies to land themselves in a solid
financial position in the first place. It will also
require the smart use of data.
First on the customer acquisitions front,
rigorous risk assessment processes will be
required. On-boarding customers that don’t pay
on time, or don’t pay at all, will erode the solid
financial position that a business has built.
Second, the ever-important cash flow
management. With a shifting economic
environment comes a shifting outlook for
customers. The days of simply checking
customers at the outset of a relationship are
long gone, with diligent operators committing
to monitoring and managing their customer
relationships on a monthly basis. This is the
only way to ensure that you stay on top of your
cash flow situation.
The smart use of data requires a business
to bring together all of its various information
sources to ensure they have the best picture
of where opportunities exist. A mass
marketing list may have been enough in
the past. However, in the new environment
smart businesses will begin with a targeted
Now is the time for businesses to stop
bunkering down and instead, seize the
opportunities that exist.”
3 – D&B insight
A register reform reminder
A timely reminder for businesses about the PPSR
With transitional provisions under the
personal property securities law reform ending
in January 2014, it’s worth businesses revisiting
the details of the new Personal Property
Securities Register (PPSR).
The new PPSR was introduced in January 2012
as part of broad reform that has changed the way
in which Australian businesses protect themselves
against the insolvency of their customers. The
register has consolidated more than 40 separate
Commonwealth, state and territory laws and
registers under one national system.
Since its introduction, millions of
registrations have been added to the PPSR,
and millions of searches have been conducted.
Businesses can search the PPSR when they
need to know whether certain personal
property has a security interest registered
The Australian Government’s PPSR website
(www.ppsr.gov.au) provides information on
some of the more common questions and topics
for businesses considering using the register.
What can be registered?
Property that can be included on the register
includes almost anything except land and
fixtures (such as buildings). Boats, machinery,
crops, shares, art, intellectual property and
contract rights can all also be offered as
security for a loan and therefore included on
Why use the PPSR?
Businesses can improve the way that they
manage credit risk by registering their security
interest in the goods they supply or lease on
If you do not register your security interest
and a debtor goes into bankruptcy or is placed
into liquidation, your position will be like that
of an unsecured creditor. Secured creditors will
Businesses can improve the
way they manage credit risk by
registering their security interest
in the goods they supply or lease
on the register
D&B fast facts: Australian businesses
...intend to delay
decisions or investments
until after the election
...expect no business
impact from the level of
the Aussie dollar
...expect to have
increased levels of sales
...expect to increase their
level of capital
...will seek finance or new
credit to grow their
be ahead of you when payments are made or
Issues for businesses to consider
•• What extent should you participate with
•• Do you have security interests that are
registrable and, if so, need to make
•• When to register your security interests to
ensure you are protected.
Use of the register is not compulsory, however,
organisations that take advantage of the PPSR
are entitled to some powerful protections.
The PPSR and reform may affect your
business in a number of ways. Business owners
dealing with property securities should ensure
they understand the reform, especially with
transitional provisions coming to an end in
Information for businesses about personal
property securities can be found on D&B’s
website: www.dnb.com.au > ‘Credit Reporting’
> ‘Personal Property Securities’.
Winter edition 2013 – 4
Consulting on cash flow
Australian Government releases a discussion paper on late business payments
Australia’s long-running issue of slow
business payments has been officially addressed,
with the Australian Government kick-starting a
formal consultation period in July.
The Small Business Minister, Gary Gray, and
Parliamentary Secretary for Small Business,
Bernie Ripoll, have released a discussion paper
on a Prompt Payment Protocol. The paper is
intended to gather ideas from the business
community on ways to improve late business-
to-business payments, and the consequent
impact they have on cash flow.
As highlighted by Dun & Bradstreet’s
quarterly Trade Payments Analysis (see pages
11–12), businesses are taking an average of 54
days to pay each other this year, and payment
times have remained over 50 days since
early 2005. As a comparison, companies in
New Zealand are settling their invoices in an
average of 41 days.
“The release of the government’s discussion
paper reflects the significance of the issue of
late payments in Australia,” said Gareth Jones,
D&B’s Chief Executive Officer.
“When businesses have to wait more than
three weeks beyond standard terms to be paid,
it stifles their ability to invest in their business
and grow, and also to pay their own suppliers
and operating costs.”
“When one business pays late it can force
the other to withhold its own payments, which
exacerbates the slow payment cycle. This
pattern appears to be at play within the business
community at the moment,” Mr Jones added.
The Prompt Payment Protocol paper
identifies the impact of poor cash flow, unclear
payment terms and poor debt-collection
practices as some of the significant issues
being faced by Australian businesses.
The paper also outlines five payment
principles: communicating clearly; paying on-
time; encouraging good business relationships;
adopting a complaints resolution process; and
identifying as a ‘Prompt Payment Leader’.
The impact of a slow cash flow cycle is
significant at a business and economic level
as it limits businesses’ capacity to invest and
grow, while also withholding millions of dollars
of cash from the economic system.
D&B has estimated that more than $19
billion annually is locked away by businesses
that don’t pay the accounts of other firms
within 30 days.
Small businesses typically fare worse, due
to their smaller cash reserves and dependence
on trade credit to pay for operating expenses.
Additionally, smaller operations are often
reluctant to chase outstanding accounts
for fear of compromising existing business
“Small businesses represent 96 per cent
of all enterprises in Australia, so the wider
impact of late payments on the economy is
substantial,” said Mr Jones.
“If small enterprises are held back by
late payments and are unable to grow their
business, then that’s a significant handbrake
on national economic growth, especially at a
time when business activity and investment
This message was echoed by the
government’s Small Business Minister,
who hopes that the discussion paper will
bring together businesses of all sizes in a
conversation about late payments.
“Delaying payment can often have a knock-on
effect, because the delays are passed down the
supply chain to those that can least afford them,
often small businesses,” said Minister Gray.
“Small businesses are at the heart of our
economy and good cash flow is vital to enable
them to invest, compete, grow and support
Australian jobs,” he added.
According to Minister Ripoll, the payment
protocol will also encourage good
“Over time small businesses will have
confidence in the certainty of payment when
dealing with protocol signatories,” he said.
“Any business – big or small – that signs up
will be able to use the goodwill from making a
public commitment to promote themselves as
business leaders in prompt payment, building
greater trust and sustainability.”
The Prompt Payment Protocol discussion
paper was released on 24 july 2013 and
submissions can be submitted before
23 August 2013. Information about the
government’s consultation can be found on
the website of the Department of Industry,
Innovation, Climate Change, Science, Research
and Tertiary Education.
Businesses expecting cash
flow to be an issue
5 – D&B insight
The Kiwi comeback
The business risk conditions of Australia’s economic neighbour are on the up
While business owners in Australia continue
to wait for a lift in the nation’s patchy
economic performance and drawn-out
recovery from the global financial crisis, those
operating across the Tasman Sea or trading
with Kiwi businesses are enjoying more
positive and stable conditions.
Despite its size, relative geographical
isolation and recent natural disasters, New
Zealand has staged a solid recovery from the
GFC, with its 2013 performance in particular
providing a boost to trading conditions and
optimism. The improvement in the business
environment has also been bolstered by a more
confident consumer outlook.
Although the importance of the two
countries’ trading relationship weighs heavily
to New Zealand, it has provided an impressive
example to Australia in terms of commercial
and economic efficiency.
Accordingly, and given the country’s
proximity, lower currency and similar
commercial and societal characteristics, a
number a growing number of Australian
businesses have been ‘near-shoring’ their
operations to New Zealand where its stable
trading environment offers an advantage over
other regional locations.
An improving risk picture
According to Lance Crooks, General Manager of
Dun & Bradstreet New Zealand, the business
risk environment has improved along with its
“Stronger economic conditions and a solid
growth outlook have no doubt turned the eyes
of many foreign operations to New Zealand.”
“Companies doing trade in New Zealand
or with New Zealand-based firms have
confidence in the local economy and its low
level of commercial risk,” he said.
D&B’s latest country report for New Zealand
shows that its risk indicator was upgraded
during the second quarter of the year. With
a DB2b rating, the New Zealand economy
is considered low risk, with a low degree of
uncertainty for companies doing business in
the country. In comparison, and despite still
sitting within the lowest risk band, Australia
is listed as on a ‘deteriorating’ trend due to
its adverse mix of political, commercial and
The D&B risk indicator provides a
comparative and cross-border assessment
of the risk of doing business in a country,
considering factors that could affect the
predictability of export payments and
investments, including political, commercial,
external and macroeconomic risks.
“Following some lean years after the GFC,
businesses have become more efficient, with
their productivity and profit growth improving
as a result,” said Mr Crooks.
“A stable local environment is delivering
confidence to companies operating in New
Zealand to pursue further growth, despite
lingering worries about the global risk picture.”
Trade payments certainty
Certainty of business-to-business payments
has been an important factor in New Zealand’s
improving trading environment. D&B’s analysis
of trade payment data shows that businesses
have been settling their accounts in around six
weeks throughout the past 12 months, with
payment times declining year-on-year to 41
days in Q2 2013.
The improvement in the capacity of New
Zealand businesses to pay each other in a
more timely manner reflects their more stable
financial position. Typically, companies with
healthier cash flow are better equipped to pay
each other sooner, while those that are cash-
constrained will delay payments.
“Companies have continued to reduce their
payment times in spite of the impacts of the
recent drought and earthquakes,” said Mr Crooks.
“This points to a resilience in the local
economy and also the prudent management of
cash flow by local businesses.”
Payment cycles in the agriculture sector in
particular have fallen, with farming confidence
improving after the country’s longest running
drought in decades ended. On average,
businesses in the agriculture sector have been
paying their invoices three days earlier than
they were at the beginning of the year.
It is, however, New Zealand’s economic
reliance on export and agriculture trade,
in particular with China where growth has
softened, which remains an area of potential
concern. China is ranked 48th on D&B’s
country risk table, with a DB4a rating, a
Hong Kong DB2b
NEW ZEALAND DB2b
D&B risk reports – July 2013
Winter edition 2013 – 6
moderate rating which suggests there is
significant uncertainty over expected returns,
with risk-averse customers advised to protect
against potential losses.
Strength in numbers
A look at the macroeconomic numbers in
D&B’s country analysis underscores the
positive outlook for New Zealand businesses
(see chart below). Real GDP growth is forecast
to increase from 2.0 per cent this year to 2.8 per
cent in 2014, and then trend within this range
through to 2017. Likewise, inflation is forecast
to lift from 1.6 per cent to 2.0 per cent as the
effect of the country’s continued low interest
rate levels and strengthening consumer
confidence lifts prices.
This favourable medium-term monetary
and fiscal trajectory, combined with boost from
post-earthquake reconstruction could see the
government achieve a budget surplus by 2014–
The combination of these elements has
given companies motivation to prepare for
further growth and invest in their business.
This has been particularly evident in the
improving unemployment rate in the New
After reaching a 14-year high of 7.3 per cent
in the September quarter of 2012, national
unemployment has fallen for two consecutive
quarters to reach 6.2 per cent at the end Q1 this
year. D&B’s country risk report has forecast
unemployment to be at 6.8 per cent through 2014.
With economic activity looking positive
through the remainder of this year and into
the next, businesses have been positioning
themselves for expansion by hiring new staff,
which is in contrast to the creeping level of
unemployment in Australia.
Consumer stress and caution
Levels of consumer financial stress have
dropped markedly in New Zealand during 2013
as stronger economic conditions buoy the
financial position of consumers, with Kiwis also
increasing their appetite for credit.
After peaking in late 2012, financial stress
has been steadily easing, reflecting other
positive measures of the national economy,
such as the unemployment rate. D&B’s
Consumer Financial Stress Index, which
measures consumer demand and capacity for
credit, fell to -3.7 points in June 2013, having
previously reached 14.1 in December 2012.
“The Consumer Financial Stress Index
reflects the recent change in conditions and
also matches what we’re finding in our other
research,” said Mr Crooks.
“Kiwis are reporting that they are
more comfortably meeting their financial
obligations, like credit cards, loans and
electricity bills, and that they expect to reduce
their future levels of debt.
“As a result, financial stress is easing and
consumers are regaining their appetite for new
credit – although we expect that a cautious
approach to spending is likely to continue for
some time,” he added.
Falling consumer financial stress is another
welcome sign for New Zealand, and it is likely
to continue to benefit from the steady, low
level of interest rates, falling unemployment
and strong house prices.
Businesses will be hoping that the next
economic phase includes a lift in discretionary
that despite the positive conditions, consumers
have maintained a focus on saving money.
D&B has found that 39 per cent of New
Zealanders are more likely to save money in
Q3 2013 compared to the same time last year,
while 28 per cent are less likely. Consumers
have now held this same level of savings
intentions for three consecutive quarters
despite New Zealand’s economic pick-up
through the year.
“Having come through the GFC in good
shape, the New Zealand economy is well
placed to take advantage of a global pick-up in
growth,” said Mr Crooks.
“Despite some concerns about conditions
in trade-destination countries, companies
should feel optimistic about the fundamentals
in the economy and our stable business
environment,” he added.
New Zealand’s economic indicators
Real GDP growth
Current account balance
7 – D&B insight
Businesses say no new jobs
The employment outlook is at its lowest point since the GFC
Australian businesses don’t plan to employ new
staff in the months ahead in an indication they
expect the period of weak economic growth
experienced so far in 2013 to continue through
the remainder of the year.
Dun & Bradstreet’s Business Expectations
Survey reveals that the hiring expectations of
businesses have declined for six consecutive
quarters, with the employment index for
Q3 2013 falling to -3.3 points, its lowest level
in four years. An index in negative territory
indicates that a greater number of businesses
intend to reduce their employment levels than
hire new staff.
With the exception of those firms in the
transportation, communications and utilities
sector, which recorded a flat result, businesses
from all of the industries surveyed expect to
decrease their employment in Q3. Companies
in the construction, manufacturing and
retail sectors expect the greatest level of
With actual employment activity across
the past year tracking downwards with the
survey’s forward-looking index, these findings
suggest that the recent series of company job
cuts and off-shoring announcements will not
be in isolation.
Operating costs, weak sales and slow cash
flow appear to be limiting businesses’ capacity
to hire new staff, while an uncertain economy
and this year’s election are factors affecting
demand for new labour.
“With little spark to be found in the local
economy, businesses appear wary of investing,
instead focusing on their core business and
controlling their expenses at a time when
operational costs are high,” said Gareth Jones,
D&B’s Chief Executive Officer.
“This is a continuation of what businesses
have been telling us throughout the first half
of the year – that they won’t seek new credit
to grow their business and that they won’t be
increasing employment and other significant
forms of business spending,” he said.
During 2013 the monthly Business
Expectations Survey has shown there is a steady
decline in overall business spending intentions,
with the capital investment plans falling in
tandem with the hiring outlook.
The survey’s capital investment index has
reached a four year low of -1.5 points for the
September 2013 quarter, well below its 10-year
average. While assisted through the middle
of the year by a falling dollar, businesses
in the manufacturing sector have led the
decline in the outlook for capital spending.
Manufacturers have been noticeably affected
by a soft domestic economy, however, all of
the sectors surveyed appear to be forecasting a
continuation of slow growth.
Consistent with restrained spending plans,
Australian businesses are continuing to turn
away from new finance. Only 7.9 per cent of
businesses responded that they intend to seek
finance in Q3 to help their business grow. This
follows a response of 2.5 per cent in May, and
3.9 per cent in April.
According to Mr Jones the subdued appetite
for borrowing indicates that businesses don’t
anticipate a significant pick-up in activity
“It appears businesses don’t see any
substantial improvement in trading conditions
in the new financial year to cause them to
prepare for growth, while the election is also
creating uncertainty and dampening new
activity,” he said.
March Quarter 2010 – September Quarter 2013
JUN SEP DEC MAR
JUN SEP DEC MAR
JUN SEP DEC MAR
Winter edition 2013 – 8
Issues expected to
during the September
14%of executives anticipate that the
level of interest rates will be the issue
that most influences their business.
29% of businesses expect cash flow will
be the major issue for their operations,
while 21 per cent report fuel prices.
38% of businesses do not think the
outcome of this year’s Federal Election
will have any affect on their business.
42% of companies consider that
utilities and operational costs will be the
biggest barrier to growth, followed by a
slow growth in demand for their products
(25 per cent).
59% of businesses expect that they will
experience ‘no impact’ from the current
level of the Australian dollar, while 15
per cent expect they will experience a
‘significant positive’ impact.
68% of businesses do not intend to
seek finance or new credit to help their
“We know that businesses often defer major
spending until after an election, however that
appears to be only one piece of the puzzle. We
are seeing a generally weak outlook across all
of the survey’s indices.”
According to the Business Expectations
Survey, 25 per cent of businesses view a weak
demand for their products as the biggest
barrier to growth in the September quarter.
This is reflected in the survey’s low sales
expectations index, which has fallen steeply
from 13.5 points in the previous quarter to 4.9.
In addition, the profits index for Q3 has
edged lower to 13.2 points, compared to 14.2
in the previous quarter. This softer outlook
appears to have been impacted not just by
lower sales expectations, but also the cost of
doing business. Forty-two per cent of executives
surveyed view operational costs as the factor
most likely to limit their future growth.
“The business sector is unambiguously
preparing for weaker activity, with broad-based
declines in the key components of the D&B
Business Expectations Survey,” said Stephen
Koukoulas, Economic Advisor to D&B.
“Of most concern is the scaling back in
employment intentions, which points to net
job shedding and a rise in the unemployment
rate in the next few months,” he said.
“While there appears to be some pick-up
in expected selling prices on the back of the
recent fall of the Australian dollar, this is
from a historically low base and a more minor
consideration for businesses given the more
problematic big-picture view of the economy,”
Mr Koukoulas added.
42% – Operational costs
25% – Demand for products
15% – Outstanding accounts receivables
9% – No major barrier
5% – Access to funding
4% – Access to skilled labour
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9 – D&B insight
Stress levels ease as savings swell
Consumers’ focus on savings driven by unemployment worries
Consumer financial stress is progressively
easing this year as Australians continue
to shore-up their financial position in the
aftermath of the global financial crisis and as
unemployment creeps higher.
With the unemployment rate edging up
to 5.7 per cent in June, its highest level since
September 2009, the consumer attitude
towards increased savings which was
established following the GFC looks set to
continue. Household savings as a proportion
of disposable income have been maintained
at above 10 per cent for the past five quarters,
lifting to 10.6 per cent during the first quarter
of the year, according to the Australian Bureau
This focus on savings, combined with
low interest rates, appears to be assisting
Australians’ ability to meet their financial
obligations, with Dun & Bradstreet’s Consumer
Financial Stress Index moderating during 2013.
The index, which measures consumer
demand and capacity for credit, ticked
downwards in June to 18.0 points, its lowest
point since November 2012. Although still at
an elevated level, the downward trend is a sign
that financial prudence is translating into a
more stable financial position.
Australia’s falling interest rate levels
throughout the past 18 months have also
enabled consumers to more easily meet their
debt repayments, reducing the burden of
financial obligations including mortgages,
personal loans and credit cards.
Regular and timely repayments of bank
loans are becoming more important for
consumers, with recent changes to the Privacy
Act introducing provisions for late payments to
be recorded on personal credit reports.
“If there’s been a personal finance positive
to take out of the global financial crisis, it’s
been the recalibration of Australians’ attitude
to savings,” said Steve Brown, Director of
Consumer Risk Solutions at D&B.
“We know that job security is a major
factor in consumer confidence, and so with
the unemployment rate creeping up it’s not
surprising to see that people are being more
conservative with their money.”
“Although this attitude doesn’t necessarily
assist the position of businesses, which are
eager to see people spending again, the
continued focus on savings is a sign that
consumers are aware of the fragility of the
economy and are ensuring they consolidate
their financial position.”
“While D&B’s analysis reflects this financial
prudence, the financial stress index is still
relatively high, a reminder that the broader
economic performance is weak,” he added.
Reflecting the economy’s irregular
performance, financial stress levels during
June in mining-strong Western Australia (3.4),
Queensland (9.9) and the Northern Territory
(-1.4) remain well below the nation’s most
populous states, New South Wales (26.8) and
Despite its current low index and the
strength of its economy through the post-GFC
years, however, WA’s financial stress level is
trending upwards. During June it was the only
state to see a rise in its index, which across 12
months has increased from -0.1 points to 3.4.
The movement in the WA index parallels
the state’s increasing unemployment rate,
which has been creeping upwards since
mid-2012. According to the ABS, the June 2013
unemployment rate in WA was 4.9 per cent,
compared to 3.5 per cent the previous year.
“The fall in consumer financial stress fits
with the overall level of consumer sentiment
being a little above its long run average and is
the result of low interest rates, subdued credit
growth and rising real wages,” said Stephen
Koukoulas, Economic Advisor to D&B.
“It suggests that consumers might soon be
in a more favourable financial position and will
therefore be poised to increase their spending,
especially if there are further interest rate cuts
“A pick-up in employment growth would
also see financial stress levels fall further,”
Consumer Financial Stress Index
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Winter edition 2013 – 10
the new data environment
While the credit industry waits to see who the
early adopters of comprehensive reporting data
will be, one thing is clear: there will be benefits
to moving with the new credit environment.
Research by Dun & Bradstreet has found
that credit providers will experience improved
decision making including a 10 point increase
in the Gini-coefficient (scorecard performance).
Swap-set analysis reveals providers would also
see either a 27 per cent improvement in their
ratio of good-to-bad accounts, or a 40 per cent
reduction in the reject rate with the same ratio
of good-to-bad accounts (assuming a 15 per cent
reject rate in the existing credit environment).
While these findings reveal the advantages,
the way in which credit providers utilise new
comprehensive data will vary.
Strength in numbers
This is where it gets interesting for credit
providers in the new environment.
According to Vaughan Dixon, Director
of D&B’s Analytics and Decision Centre, if
there is only one credit provider reporting the
additional credit information available under
the new legislation, then the benefit will be
limited to that single organisation.
“At the point when two credit providers begin
supplying comprehensive data the benefit
becomes immediate and grows with each
additional, participating provider,” Mr Dixon said.
“The multiplying benefit of participating
will continue to a point where those credit
providers still on the sidelines will have their
competitive position eroded.”
“Knowing this, it is likely many credit
providers will prepare their systems and push
the ‘go button’ the moment some of the larger
lenders lead the way,” he added.
Early adoption of the new data may be
rewarded with industry incentives. That
said, while the big credit providers will be
ready to take advantage of the change, the
recommendation for smaller organisations
is to have their systems in place and start
contributing as soon as feasibly possible.
A two-speed approach
It is likely there will be two distinct groups that
use the data available in the new environment.
Conservative credit providers will be
looking to move more slowly and potentially
retain their existing scorecards, policies
and processes. They will constantly review
the available data and begin to include the
information into their processes when ready.
“Innovative credit providers, however, will
look to take advantage of the new data from
day one as they seek to strengthen their credit
position” said Mr Dixon.
“These businesses will look to lead the market
by taking advantage of new credit bureau scores
that will provide a single risk estimate across
existing and new credit databases.”
Providing data to credit bureaus
A lot of work has been undertaken to
standardise how comprehensive data is
provided to credit bureaus. Significantly, a
single data file will be accepted by all credit
bureaus, ensuring that the data is comparable.
This will provide real choice to credit providers
when deciding which bureau (or bureaus) they
New data, new decision systems
Today, access to multiple credit bureaus can help
identify additional information, such as when
incremental adverse data is held by a second
bureau (no single bureau has the full picture).
Many organisations are looking to implement
bureau hubs which will take data from a
number of credit bureaus, and then de-duplicate
and merge the data into a single, combined
picture of an applicant’s credit activity.
In this scenario, a decision system should
allow for the inclusion of existing scorecards
and policies with new data to ensure maximum
value for the credit provider as early as possible.
According to Mr Dixon, smaller credit
providers should ensure their decision tools
support the new data and provide built-in
access to all credit bureaus.
“This will ensure that control over decision
making remains with the credit provider and
not with a software provider or credit bureau.”
The Kiwi example
There are examples to take from New
Zealand, where the first credit providers are
contributing comprehensive data. The tipping
point for participation in the expanded credit
environment is close, and credit providers
and bureaus in Australia will benefit from
seeing how the new data is implemented into
decision making tools across the Tasman.
Early adoption of
the comprehensive data may be
rewarded with industry incentives.
Smaller credit providers should
ensure their decision tools
support the new data and
provide built-in access to all
11 – D&B insight
Australian businesses are taking longer to
pay each other in 2013 compared to a year
earlier, in an indication that their level of
financial health has not improved.
Despite edging down in the June quarter,
businesses are taking 54 days to settle their
accounts this year according to analysis of
more than 8 million trade payment records
by Dun & Bradstreet. Business payment times
provide accurate insight to the financial health
of businesses – those with available cash tend
to pay their accounts in a timely manner, while
cash-constrained businesses pay late.
After trending at around 53 days from
mid-2011 until the end of 2012, payment times
have edged up during 2013, suggesting that
business cash flow remains an issue.
These findings, from D&B’s Trade Payments
Analysis, reveal the challenging conditions
being negotiated by companies and highlight
the relevance of the Australian Government’s
discussion paper on improving small business
cash flow, which was released in July.
After increasing steadily following the
global financial crisis, trade payment times in
Australia improved through 2011, and again
in mid-2012. These improvements, however,
have been reversed across the past six months
in particular, as the pressures of the current
business environment impact the capacity of
companies to pay their costs.
“The slowdown in the time that businesses
are taking to pay each other suggests that
business conditions are not improving, and the
proximity of a genuine economic pick-up is still
some time away,” said Tim Lord, President
“Despite low interest rates making access to
credit more affordable, businesses’ ability to
pay their invoices in a timely manner appears
to be deteriorating in the face of weak sales
activity and high operating costs.”
“This is particularly concerning because of
the strong link between cash flow problems
and business failures,” Mr Lord added.
According to findings from D&B’s Business
Expectations Survey, 67 per cent of businesses
expect that cash flow will be an issue for their
operations in last quarter of 2013, suggesting
that there will be no near-term improvement
in the current trade payment numbers.
At an economic level, Australia’s slow
payment cycle is withholding millions of
dollars of cash from the system at a time when
growth and business activity is weak. The
effect of this is especially pronounced among
small businesses, which rely on trade credit to
pay for operating expenses.
This impact of slow payments on small
businesses has been highlighted by the
Australian Government, which is consulting
on how to improve small business cash flow
and strengthen business relationships. The
government has released a discussion paper on
a Prompt Payment Protocol, to help generate
ideas about how to address the issue of late
business payments (see page 4).
At an industry level, D&B’s Trade Payments
Analysis shows that businesses in the retail
and mining sector have been the slowest to
settle their accounts in the first half of the
year, taking 57 days, while utilities companies
have taken 56 days. The nation’s fastest
paying companies have been those from the
transportation sector, which have paid their
business accounts in an average of 50 days.
According to Stephen Koukoulas, Economic
Advisor to D&B, the news on payments time is
Payment times indicate poor financial health
Australian businesses are taking 54 days to pay their invoices
Australian business payment times
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Winter edition 2013 – 12
Q2 2012 Q2 2013
open to a number of interpretations.
“An optimist would say that the
consolidation in payment times in the June
quarter, at a level below the 2011 and GFC
peaks, is a sign that low interest rates are
slowly making their mark.”
“However, a pessimist would note that
payment times remain somewhat elevated and
that there is a risk they rise further if the rate
of economic growth remains below trend,” Mr
“Further interest rate cuts from the RBA and
the lower Australian dollar will no doubt boost
business conditions, with a lag, so there are
grounds to expect payment times to fall back
in the next six to 12 months.”
Trade payments analysis
D&B holds more than 8 million trade
payment records, which are a highly
predictive data set and a critical element
in credit risk scores and the forecasting of
The distinct advantage of trade
information over other forms of company
data is its ability to provide insight
into current performance. Company
financials, which are considered to be
critical to effective decision making, are
reported relatively infrequently and as a
consequence, organisations may be required
to make decisions using data that is up to
12-months old. Conversely, because trade
payments information is reported monthly,
it reveals how an organisation is paying its
Trade data is also effective across all
business sizes, being the most predictive
element in small and medium business
risk scores and the second most predictive
(behind financials) in other credit scores.
The predictive nature of trade data
combined with its timely availability enables
businesses to properly assess credit risk.
Business payment times: by industry
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With more than 50 years of experience recovering commercial and personal debts,
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13 – D&B insight
Addressing economic constraints for MSMEs
The role of bureaus in reducing information asymmetry and increasing credit access
Inadequate access to finance and credit
represents one of the most critical constraints
to economic development, particularly for rural
and self-employed households and for micro,
small and medium enterprises (MSMEs).
Lenders often lack the necessary information
to assess the creditworthiness of potential
customers, including a lack of reliable and
unique identification for individuals and
businesses. In the absence of automated
screening methods, the relative costs of personal
screening and due diligence are very high, while
the loan amounts tend to be modest. With
limited access to inclusive and timely data,
lenders are also concerned that borrowers might
accumulate many loans from multiple lenders,
potentially resulting in over-indebtedness and
leaving lenders with an unacceptably large
portfolio of non-performing loans.
In markets faced with these challenges,
credit reporting service providers can
perform the crucial functions of gathering
and distributing reliable credit information,
improving creditor protection, and
strengthening credit markets. Credit reporting
service providers can reduce information
asymmetry, thus reducing default rates, which
in turn should result in lower average interest
rates, enhanced competition in the credit
market, and ultimately increased access to credit.
Access to finance is an essential component
to economic development and job creation.
Many studies have shown a positive correlation
between financial development and economic
growth. Well-functioning financial systems
offer a variety of financial products for savings,
credit, and risk management to a wide range
of people and enterprises. Access to financial
services enables households to smooth
consumption curves and acquire access to
essential services including food, housing,
health, and education. MSMEs require access
to financing to meet short and long-term
capital needs and to grow and expand their
businesses. Access to finance is also critical for
larger corporations and conglomerates.
In developed economies, approximately
90 per cent of adults have access to formal
financial services compared with 41 per cent
in emerging markets. The total unmet need
for credit by all formal and informal MSMEs in
emerging markets today is in the range of $2.1
trillion to $2.5 trillion. Access to credit is largely
hindered by the lack of sufficient information
on the ability of a potential borrower to repay
debt and the lack of supporting financial
infrastructure to make such information
available. In most markets, commercial lending
is traditionally focused on large companies and
select retail clients. The credit needs of smaller
entrepreneurs and communities are primarily
met through informal financial services and
Credit markets are typically characterised by
a fundamental problem: that of asymmetric
information, where the borrower knows the
odds of repaying his or her debts much better
than the lender does. The inability of the lender
to accurately assess the creditworthiness of
the borrower contributes to higher default
rates and smaller loan portfolios.
Lenders typically address these problems
with collateral to cover loss in case of a default
or by investigating a borrower’s ability to repay.
Requiring collateral is often problematic,
particularly in the case of new firms and MSMEs,
which often lack significant assets recognised as
useable collateral. In addition, the costs to lenders
of seizing and liquidating assets used as collateral
can be significant and the process lengthy.
The unavailability of information at a low
cost often restricts the ability of lenders to
profitably lend to MSMEs.
Monitoring and screening borrower
behaviour is one way to minimise problems
of asymmetric information. Past behaviour is
a reliable predictor of future behaviour. For
example, in many countries, banks commonly
grant credit to a firm only after it has had an
account with a bank for at least six months.
This allows the bank to observe the firm’s
cash flow. Nonetheless, the relevance of past
behaviour should be considered in context,
since it cannot explain all behaviour, and
could be irrelevant when adverse economic
conditions change the circumstances.
The above excerpt is from the Credit Reporting
Knowledge Guide (2nd edition), which was
prepared by members of the International Finance
Corporation Global Credit Reporting Program
team under the direction of Tony Lythgoe.
The guide focuses on the credit needs of
individuals and the micro, small, and medium
businesses that stand to benefit the most from
the development of credit reporting systems. A
copy of the guide can be found at:
Tony Lythgoe shared his views on the
global credit reporting environment at D&B’s
Commercial Credit & Collections Conference.
Credit reporting bodies perform
the crucial functions of gathering
and distributing reliable credit
information, improving creditor
protection, and strengthening
Winter edition 2013 – 14
Small business, big credit opportunity
Small firms are too big to ignore when it comes lending opportunities
One of the striking statistics about the
economy is that small firms make up 96 per
cent of all businesses.
While this statistic is not new, it deserves
fresh attention given the slow crawl of credit
growth in Australia post GFC, and the unique
risk environment in which lenders are operating.
Business credit increased by 0.9 per cent
year-on-year, according to the RBA’s financial
aggregates in May. Additionally, ASIC data
shows that more than 2,500 companies have
been entering into insolvency appointments
each quarter for the past two years.
With no obvious near-term event likely to
improve this credit risk environment, credit
providers will need to look deeper into the
current lending pool for opportunities. This
includes a closer examination of the risk profile
of small businesses.
Who are the 96 per cent?
Although definitions vary on what a small
business is, there are some general identifiers.
Sixty per cent are unincorporated and most
are home-based with no, or few, employees.
Consequently, they also tend to have very little
commercial credit history, instead opting to
use consumer products to pay for operational
According to Darin Milner, Director of Risk
Management Solutions at Dun & Bradstreet,
this is a significant characteristic of the
unincorporated small business.
“Because there is no distinction between
the business owner and the business itself,
understanding the commercial credit risk
involves understanding the individual,” he said.
“To adequately assess and price-risk
unincorporated small businesses, commercial
and consumer credit data needs to be blended.”
Mixing it up
When you mix commercial information with
personal credit records a detailed business
credit profile can be created.
D&B has created such profiles on the more
than one million unincorporated entities, with
the information revealing a significant lending
opportunity exists. The profiles show that:
•• 70 per cent have no extensive financial
obligations (defined as a registered charge
•• 65 per cent have no history of an adverse
credit event in the past seven years
•• more than 55 per cent have made no more
than one credit enquiry in the past two years.
When a small business risk score is applied
to this profile information, the size of the credit
opportunity becomes more apparent. This risk
score covers a business’s payment patterns,
recent credit defaults and its credit enquiries.
The way that a business pays its invoices is
the most predictive element in small business
scoring. This ‘trade payment data’ tracks the
amount of time it takes for a business to settle
its accounts and indicates its likelihood of
paying late – or not at all.
Time since last default
While any adverse credit event is a clear
indicator of risk, it is the time since the most
recent negative event which provides sharper
meaning. Analysis of this factor shows that an
unincorporated entity whose owner defaulted
on a credit obligation more than 24 months
ago is half the chance of entering bankruptcy
compared to one whose owner defaulted in
the last 60–90 days.
Volume of credit enquiries
Another telling factor in a small business’s risk
score is the volume of its credit enquires. The
greater the number of enquiries, the higher
the risk, particularly if those enquiries have
occurred over a short period of time, such as a
By analysing these risk indicators, D&B has
found that 40 per cent of the small businesses
profiled would immediately return a score that
qualified them for credit. That’s more than
400,000 credit opportunities brought to light
under closer inspection.
A clearer credit picture
Due to their size, irregular structure and
vulnerability to economic conditions, there’s
no doubt small businesses can be a risky
proposition for lenders. When considering the
current weak credit environment, however, the
sheer volume of small businesses presents a
lending pool that is too substantial to overlook.
“Because small business owners are often
indistinguishable from their enterprise, blending
data is the key for lenders,” noted Mr Milner.
“Combining the personal credit data of
small business owners with their commercial
profile opens up a new and clear picture of this
untapped credit market.”
Because there is no
the owner and the business,
understanding commercial credit
risk involves understanding