Our regular data series from CreditWorks Data Solutions (www.creditworks.co.nz) assesses the level of credit risk posed by the four business sectors most closely associated with our chosen industry:
In our last update reporting on the September month (posted 27 October), we warned about rising debt costs for companies in and around the building industry who may have over-extended themselves.
Indeed, so far this month we have seen at least two major building firms go into liquidation. One of these, Maxim Design Ltd, has a tax bill with IRD of $450,000 and unsecured creditors of close to $3 million.
"We are certainly noticing some stress in building sector cashflows," confirms CreditWorks’ Alan Johnston.
Our stats this month reflect a clear increase in aging debt through all four sectors, particularly around the low to medium risk areas.
This is represented by increased risk in the 1.5-5.0% areas in particular.
The increased risk movement appears most prevalent in the Residential Construction sector where we are seeing deterioration in three of the risk columns, from 1.25% out to the 20% risk profile (see the first chart below for the detail).
While this level of risk increase may not seem much at this point, Alan Johnston calls this movement "a significant trend that we would want to see arrested prior to going into the perennial payment problem period of Jan-March."
"This is of concern as it doesn’t take much beyond this to start seeing more failures in the industry," he underlines.
"A word of warning to all Credit Managers out there.
"When assessing the perceived debt levels of a company, and their aging, always bear in mind that the IRD will not have disclosed their figures anywhere along the way, and there will inevitably be a substantial tax bill outstanding as well as trade debt.
"The Maxim Design failure clearly shows this and, while creditors may have felt there was, or may have been, enough cashflow being produced to warrant continuing supply, the IRD has preferential rights in any liquidation.
"In this instance, after the failure, they stepped in with a bill of $450,000 which needs to be paid before any other unsecured creditor gets a penny."
Now see the charts below for a visual explanation of the last three months’ risk profiles across our four chosen sectors.
The left axis indicates the % of a sector that is at risk. The bottom axis shows the % likelihood of failure over the next 18 months.