CONSTRUCTION IN FOCUS

Construction industry insolvency forecast

As can be seen in the graph below, insolvencies declined sharply during the Covid era. However, insolvency numbers for the current financial year are forecast by BICB to be the highest in ten years. (2022/2023 YTD to 31 Jan 2023).

BICB recorded liquidations for five of the past eight months, for entities reported in our database, have also been breaking records.

BICB Total Consolidated Debt Above 60 Days Comparison

What is actually happening?

Debt Above 60 Days Trend

BICB’s data clearly shows how the debt percentage above 60 days decreased during the Covid era. However, recent feed-back from BICB members suggests that payments are beginning to slow down. This anecdotal information is reflected in the payment data for December 2022 and January 2023, above.

The value of data for successful risk mitigation

We live in a world where data is king. And with so much information available, the most effective risk mitigation systems will pull data from multiple different sources as no single source is able to provide the complete picture.

However, for data to be useful in managing risk it needs to be accurate, comprehensive and, most importantly, early enough to provide advanced warning so you can be on the front foot to mitigate your risk in real-time. Some data sources are retrospective in nature and provide great clarity after the fact, but these have limited value as situations evolve. Fortunately, there are a number of other excellent tools available to credit managers that can identify deteriorating trends and potential red flags months in advance of eventual business failures. Use of these tools within your credit management processes can add significant value to your business.

This is a time to be vigilant

Know Your Customer – Front and centre of managing your risk is having a strong understanding of your customers. This is essential for any business looking to succeed in creating reliable credit risk management processes.

Assessing any customers’ credit risk profile is only possible with access to data that is comprehensive, accurate and up-to-date. ‘Credit Risk Management’ techniques and models that are supplied with rich data sets will help significantly improve credit risk processes.

Assessing Risk – Whether onboarding new customers or, reviewing existing customers, access to meaningful data is critical. This information is generally sourced through Credit Reporting Agencies and Industry Trade Bureaus that provide online access to current and historical trading data, comprehensive Court action reports and alerts, ASIC data, Licencing Regulators and Trade References from other suppliers. Both of these sources provide their own unique valuable data to feed into a comprehensive risk management process that enables the credit team to make the most informed decisions.

As an example BICB members have the advantage of having access to large sets of trading data which enables them to monitor payment trends.

Wayne Clark MICM, MAICD Executive Director, Building Industry Credit Bureau

E:

T:

wayne@bicb.com.au

0402 244515

Acknowledgements

(a) Graphs supplied by Building Industry Credit Bureau