1 00:00:03,930 --> 00:00:06,330 Sean Aylmer: Welcome to the Fear and Greed business interview. I'm Sean 2 00:00:06,600 --> 00:00:09,809 Sean Aylmer: Aylmer. During the pandemic, the level of government support meant 3 00:00:09,809 --> 00:00:12,209 Sean Aylmer: a lot of businesses that would normally have gone under, 4 00:00:12,270 --> 00:00:16,320 Sean Aylmer: stayed afloat. In some cases, well beyond their normal lifespan. 5 00:00:16,559 --> 00:00:18,599 Sean Aylmer: It meant we saw a much lower insolvency rate than 6 00:00:18,600 --> 00:00:21,270 Sean Aylmer: usual. Well, that trend is well and truly over. The 7 00:00:21,270 --> 00:00:24,569 Sean Aylmer: rate of business administrations has dramatically increased and is now 8 00:00:24,570 --> 00:00:28,679 Sean Aylmer: back to pre- Covid levels. Patrick Coghlan is the CEO 9 00:00:28,679 --> 00:00:31,110 Sean Aylmer: of CreditorWatch. Patrick, welcome to Fear and Greed or I 10 00:00:31,110 --> 00:00:32,639 Sean Aylmer: should say, welcome back to Fear and Greed. It was a 11 00:00:32,639 --> 00:00:34,620 Sean Aylmer: while ago, but you've been on the show before. 12 00:00:34,949 --> 00:00:37,890 Patrick Coghlan: Yeah, that's right. Great to be back. Thanks for having me. 13 00:00:38,820 --> 00:00:41,820 Sean Aylmer: CreditorWatch release is the monthly business risk index. It's out 14 00:00:41,820 --> 00:00:45,269 Sean Aylmer: today. Now take me through the current situation. 15 00:00:45,960 --> 00:00:50,159 Patrick Coghlan: Look, I always try to find the positives and the negatives. 16 00:00:50,729 --> 00:00:53,428 Patrick Coghlan: It's quite easy, I think, over the last three years 17 00:00:53,430 --> 00:00:55,830 Patrick Coghlan: or so to be very, very negative. But there are 18 00:00:55,830 --> 00:00:58,740 Patrick Coghlan: a few little green shoots there. But look, overall it's 19 00:00:58,740 --> 00:01:01,950 Patrick Coghlan: really tough out there for businesses, particularly small and medium 20 00:01:01,950 --> 00:01:05,729 Patrick Coghlan: businesses that are generally more cash strapped than the larger ones. 21 00:01:06,150 --> 00:01:10,199 Patrick Coghlan: And unfortunately, it's probably only going to get worse and 22 00:01:10,199 --> 00:01:12,359 Patrick Coghlan: we're going to be sort of stuck in this sort 23 00:01:12,359 --> 00:01:13,770 Patrick Coghlan: of scenario for a while. Yeah. 24 00:01:14,730 --> 00:01:17,069 Sean Aylmer: Okay. So what are the data points on that that 25 00:01:17,069 --> 00:01:17,790 Sean Aylmer: you are seeing? 26 00:01:18,660 --> 00:01:20,910 Patrick Coghlan: So the key data points that we see in our 27 00:01:20,910 --> 00:01:25,439 Patrick Coghlan: unique data that comes into our database from tens of 28 00:01:25,440 --> 00:01:29,610 Patrick Coghlan: thousands of businesses is the fact that trade payment defaults 29 00:01:29,760 --> 00:01:34,619 Patrick Coghlan: continue to trend upwards. So that is ultimately creditors or 30 00:01:34,620 --> 00:01:38,069 Patrick Coghlan: suppliers not being paid by their customers, by their debtors. 31 00:01:38,610 --> 00:01:42,840 Patrick Coghlan: We're also seeing a significant reduction in ultimately revenue. So 32 00:01:42,840 --> 00:01:45,420 Patrick Coghlan: the value of the invoices that are actually being issued 33 00:01:45,750 --> 00:01:48,180 Patrick Coghlan: by businesses to other businesses. So really looking at a B2B 34 00:01:48,630 --> 00:01:50,460 Patrick Coghlan: sort of scenario in this report. 35 00:01:51,510 --> 00:01:54,210 Sean Aylmer: Okay. What about, can you break it down by industries 36 00:01:54,210 --> 00:01:57,150 Sean Aylmer: at all? What industries are facing the highest risk of 37 00:01:57,150 --> 00:01:58,200 Sean Aylmer: payment defaults? 38 00:01:58,950 --> 00:02:03,269 Patrick Coghlan: Yeah. So unfortunately there's some key ones that are out 39 00:02:03,270 --> 00:02:06,780 Patrick Coghlan: in front often, and the one that's by far and 40 00:02:06,780 --> 00:02:09,210 Patrick Coghlan: away in the most trouble at the moment is the 41 00:02:09,210 --> 00:02:13,858 Patrick Coghlan: hospitality industry. So bars, restaurants, et cetera, are really struggling. 42 00:02:14,220 --> 00:02:18,540 Patrick Coghlan: They're obviously really exposed to discretionary spend. We're also seeing 43 00:02:18,599 --> 00:02:23,429 Patrick Coghlan: a lot of pressure on the warehousing logistics space as 44 00:02:23,430 --> 00:02:26,190 Patrick Coghlan: well for a few reasons. Obviously there's a big downturn 45 00:02:26,490 --> 00:02:30,360 Patrick Coghlan: in e-commerce, but they're also struggling from an increase in 46 00:02:30,360 --> 00:02:33,330 Patrick Coghlan: commercial or lack of commercial, I should say, sort of 47 00:02:33,330 --> 00:02:36,929 Patrick Coghlan: warehousing areas that's doing quite well from a cost perspective 48 00:02:36,929 --> 00:02:40,619 Patrick Coghlan: if you own warehouses, but also fuel for logistics companies, 49 00:02:40,709 --> 00:02:42,360 Patrick Coghlan: cost of fuel is obviously really high. 50 00:02:42,360 --> 00:02:46,169 Sean Aylmer: There's some areas that aren't doing as poorly as you 51 00:02:46,169 --> 00:02:48,840 Sean Aylmer: thought they might be. And I mean, I actually want 52 00:02:48,840 --> 00:02:52,230 Sean Aylmer: to ask about construction specifically. But otherwise, are there areas 53 00:02:52,230 --> 00:02:53,339 Sean Aylmer: which are holding up okay? 54 00:02:54,240 --> 00:02:58,259 Patrick Coghlan: Yeah. So I think let's talk about the others before we 55 00:02:58,260 --> 00:03:00,840 Patrick Coghlan: get to construction, which is obviously always a good one 56 00:03:00,869 --> 00:03:05,220 Patrick Coghlan: to talk about. There's definitely some positives that come out 57 00:03:05,220 --> 00:03:07,380 Patrick Coghlan: of it when we look at it from an industry perspective. 58 00:03:07,980 --> 00:03:12,629 Patrick Coghlan: Healthcare is performing really well. And then my two favourites 59 00:03:12,630 --> 00:03:16,469 Patrick Coghlan: to talk about, wholesale trade and manufacturing. This wasn't that 60 00:03:16,469 --> 00:03:19,680 Patrick Coghlan: long ago that we were all talking about manufacturing being 61 00:03:19,680 --> 00:03:22,440 Patrick Coghlan: dead in Australia, and that's certainly sort of roared back 62 00:03:22,440 --> 00:03:26,280 Patrick Coghlan: to life. I always like to note that agriculture, forestry, 63 00:03:26,280 --> 00:03:29,219 Patrick Coghlan: and fishing, so this is obviously an industry classification that 64 00:03:29,219 --> 00:03:33,690 Patrick Coghlan: comes through, is performing really well despite, if you think 65 00:03:33,690 --> 00:03:38,280 Patrick Coghlan: back to pre-COVID, it was fires, floods, and plagues that 66 00:03:38,280 --> 00:03:40,470 Patrick Coghlan: they were dealing with on a regular basis. So they're 67 00:03:40,470 --> 00:03:41,610 Patrick Coghlan: performing nicely too. 68 00:03:42,270 --> 00:03:44,130 Sean Aylmer: Stay with me, Patrick, we'll be back in a minute. 69 00:03:50,340 --> 00:03:55,260 Sean Aylmer: My guest this morning is Patrick Coghlan, CEO of CreditorWatch. Okay. 70 00:03:55,260 --> 00:03:56,400 Sean Aylmer: So what about construction? 71 00:03:57,210 --> 00:04:00,420 Patrick Coghlan: Yeah, look, construction's a really interesting one. The first thing 72 00:04:00,420 --> 00:04:03,599 Patrick Coghlan: I'll say is it's probably the industry that gets... not 73 00:04:03,599 --> 00:04:07,080 Patrick Coghlan: probably, it's definitely the industry that gets reported on by 74 00:04:07,080 --> 00:04:10,320 Patrick Coghlan: far the most from a media perspective, and that's not 75 00:04:10,320 --> 00:04:13,020 Patrick Coghlan: a surprise. We live in a country where we are 76 00:04:13,049 --> 00:04:16,710 Patrick Coghlan: first and foremost property obsessed, and then construction as a 77 00:04:16,710 --> 00:04:22,349 Patrick Coghlan: whole produces a huge amount from a GDP perspective, is a massive employer of 78 00:04:22,349 --> 00:04:25,889 Patrick Coghlan: people as well. So fairly gets reported on, I would 79 00:04:25,889 --> 00:04:29,879 Patrick Coghlan: say the most, but probably slightly over indexed compared to 80 00:04:29,879 --> 00:04:32,250 Patrick Coghlan: some of the others. The other thing that is quite 81 00:04:32,250 --> 00:04:36,390 Patrick Coghlan: unique is that when a large construction company goes under 82 00:04:36,690 --> 00:04:39,660 Patrick Coghlan: and there's always a few a year, you don't have to think 83 00:04:39,660 --> 00:04:43,799 Patrick Coghlan: back too far to remember Probuild of course. We're talking 84 00:04:43,799 --> 00:04:47,039 Patrick Coghlan: in the hundreds of millions for probably the big ones, 85 00:04:47,039 --> 00:04:49,529 Patrick Coghlan: and then sometimes even the billions for the really big 86 00:04:49,529 --> 00:04:52,770 Patrick Coghlan: ones. So from a headline perspective, from an impact perspective, 87 00:04:52,770 --> 00:04:56,880 Patrick Coghlan: it is really, really significant. So what we're seeing at the moment in construction 88 00:04:56,940 --> 00:05:01,589 Patrick Coghlan: is payments are always slow in construction, they remain slow. 89 00:05:02,040 --> 00:05:04,859 Patrick Coghlan: Anyone that operates in that industry knows that is that 90 00:05:04,859 --> 00:05:07,589 Patrick Coghlan: there's a culture of just slow payment and there's some 91 00:05:07,830 --> 00:05:12,120 Patrick Coghlan: unique nuanced elements around progress payments and holding funds for 92 00:05:12,300 --> 00:05:16,049 Patrick Coghlan: defects and whatnot. So what's really important when assessing risk 93 00:05:16,290 --> 00:05:19,980 Patrick Coghlan: in construction is really understanding what your exposure is. If 94 00:05:19,980 --> 00:05:23,580 Patrick Coghlan: it's a sizable amount, we're talking hundreds of thousands if 95 00:05:23,580 --> 00:05:26,130 Patrick Coghlan: not millions, you need to be getting into the financial 96 00:05:26,130 --> 00:05:29,250 Patrick Coghlan: risk. You need to be understanding how does their balance 97 00:05:29,250 --> 00:05:31,080 Patrick Coghlan: sheet look? What's their profit and loss for the last 98 00:05:31,080 --> 00:05:35,070 Patrick Coghlan: couple of years? Can they actually fulfill the job or 99 00:05:35,070 --> 00:05:38,488 Patrick Coghlan: the order that you've engaged them with? So construction of 100 00:05:38,490 --> 00:05:41,609 Patrick Coghlan: all industries, I would say is one of the most 101 00:05:41,609 --> 00:05:45,450 Patrick Coghlan: complicated and it requires additional time to be spent when 102 00:05:45,450 --> 00:05:49,830 Patrick Coghlan: assessing it. But then you've also got the higher volume, 103 00:05:49,890 --> 00:05:54,269 Patrick Coghlan: low value types of relationships in terms of tradies ordering 104 00:05:54,270 --> 00:05:57,570 Patrick Coghlan: bricks and cement being delivered and whatnot. For those smaller 105 00:05:57,570 --> 00:06:00,389 Patrick Coghlan: projects, there's probably less risk in that space. It's those 106 00:06:00,389 --> 00:06:03,630 Patrick Coghlan: larger ones where a bit more due diligence needs to 107 00:06:03,630 --> 00:06:04,230 Patrick Coghlan: be performed. 108 00:06:04,890 --> 00:06:10,678 Sean Aylmer: Okay, Patrick. Let's put all this together. The CreditorWatch data 109 00:06:10,678 --> 00:06:13,889 Sean Aylmer: is a great leading indicator of what's happening in the 110 00:06:13,889 --> 00:06:15,750 Sean Aylmer: economy. How do you read it? 111 00:06:17,039 --> 00:06:19,770 Patrick Coghlan: Yeah. So look, there's probably two ways to read it. One, 112 00:06:20,100 --> 00:06:22,620 Patrick Coghlan: it is really tough out there and it will continue 113 00:06:22,620 --> 00:06:26,880 Patrick Coghlan: to get tougher and there will be a sustained period 114 00:06:27,000 --> 00:06:31,529 Patrick Coghlan: of really tough trading. And I think there's two horizons 115 00:06:31,529 --> 00:06:34,709 Patrick Coghlan: that businesses are looking forward to and that comes through 116 00:06:34,709 --> 00:06:37,229 Patrick Coghlan: in our data, but also from the hundreds if not 117 00:06:37,230 --> 00:06:40,740 Patrick Coghlan: thousands of businesses we're talking to on a regular basis. 118 00:06:41,130 --> 00:06:44,460 Patrick Coghlan: In that one, when will we see somewhat of an 119 00:06:44,460 --> 00:06:48,150 Patrick Coghlan: official pause on rates? Now given historical sort of statements 120 00:06:48,150 --> 00:06:50,610 Patrick Coghlan: by the RBA, we may not get any sort of 121 00:06:50,880 --> 00:06:54,179 Patrick Coghlan: guarantee from anyone at the RBA around rates being on pause, 122 00:06:54,180 --> 00:06:57,029 Patrick Coghlan: but I think there'll be a lot of confidence around, okay, 123 00:06:57,029 --> 00:06:59,760 Patrick Coghlan: we're in a hold now and there's unlikely to be more. 124 00:06:59,820 --> 00:07:03,089 Patrick Coghlan: So that's horizon one. Horizon two will be confidence that 125 00:07:03,089 --> 00:07:05,610 Patrick Coghlan: we're going to see a decrease or cut in rates. 126 00:07:06,480 --> 00:07:09,599 Patrick Coghlan: And I think fortunately where we're at is businesses in 127 00:07:09,599 --> 00:07:14,130 Patrick Coghlan: Australia are really well positioned after sustained challenges through COVID. 128 00:07:14,850 --> 00:07:18,120 Patrick Coghlan: They're operating efficiently where they had an opportunity to invest 129 00:07:18,120 --> 00:07:20,970 Patrick Coghlan: in technology they have and they've cut costs out of the 130 00:07:21,540 --> 00:07:25,530 Patrick Coghlan: business as well. So for those businesses that would've survived 131 00:07:25,770 --> 00:07:27,960 Patrick Coghlan: if COVID hadn't have come along, so in a normal 132 00:07:28,080 --> 00:07:31,739 Patrick Coghlan: trading environment, they're prepared for the future. But there's always going to be those that 133 00:07:32,460 --> 00:07:34,770 Patrick Coghlan: go under. And I think what we'll see is we'll go above the 134 00:07:35,580 --> 00:07:39,360 Patrick Coghlan: number of insolvencies we usually see pre-COVID, and then that's 135 00:07:39,360 --> 00:07:41,850 Patrick Coghlan: going to settle back down to a regular sort of rhythm. 136 00:07:43,080 --> 00:07:45,959 Sean Aylmer: Just where are we up to? I mean, we had 137 00:07:45,960 --> 00:07:50,700 Sean Aylmer: an artificially low rate of insolvencies during COVID because of the government handouts. 138 00:07:51,240 --> 00:07:54,120 Sean Aylmer: Have we caught up or I think what you just 139 00:07:54,120 --> 00:07:56,130 Sean Aylmer: said then we still have a bit of catch up 140 00:07:56,130 --> 00:07:56,610 Sean Aylmer: to go? 141 00:07:57,120 --> 00:08:01,289 Patrick Coghlan: Yeah. So yes, we have caught up and I often... 142 00:08:02,040 --> 00:08:05,100 Patrick Coghlan: I don't joke, but I often say that external administrations 143 00:08:05,100 --> 00:08:07,890 Patrick Coghlan: is one of the most reported on stats over the 144 00:08:07,890 --> 00:08:12,420 Patrick Coghlan: last three years after COVID cases, vaccination rate, and now 145 00:08:12,420 --> 00:08:15,870 Patrick Coghlan: interest rates and inflation. Rather it's often that number three 146 00:08:15,870 --> 00:08:19,499 Patrick Coghlan: on the list despite everything that's going on. And you're right, 147 00:08:19,500 --> 00:08:23,699 Patrick Coghlan: we saw a huge, huge downturn insolvencies for almost 18 148 00:08:23,699 --> 00:08:30,660 Patrick Coghlan: months where we were down 30, 40% from pre-COVID norms. We're certainly back up there, 149 00:08:30,660 --> 00:08:34,620 Patrick Coghlan: both from a number of businesses, so volume of companies 150 00:08:34,620 --> 00:08:38,009 Patrick Coghlan: that are going into external administration, but also importantly the 151 00:08:38,009 --> 00:08:41,759 Patrick Coghlan: percentage of businesses that are entering external administration. There was 152 00:08:41,760 --> 00:08:44,820 Patrick Coghlan: a big boom in new companies being started over the 153 00:08:44,820 --> 00:08:48,360 Patrick Coghlan: last two or three years as people started side hustles 154 00:08:48,360 --> 00:08:51,150 Patrick Coghlan: or were working from home and decided, "You know what? 155 00:08:51,480 --> 00:08:53,280 Patrick Coghlan: I'm going to start a business and work from home 156 00:08:53,280 --> 00:08:55,020 Patrick Coghlan: rather than do a nine to five in the office." 157 00:08:55,679 --> 00:08:57,989 Patrick Coghlan: So both those are showing that we're above where we 158 00:08:57,990 --> 00:09:03,449 Patrick Coghlan: were pre-COVID probably give or take 5 to 10%, and we 159 00:09:03,450 --> 00:09:08,460 Patrick Coghlan: expect insolvencies to continue to climb probably up to 20% 160 00:09:08,460 --> 00:09:10,080 Patrick Coghlan: above those pre-COVID averages. 161 00:09:11,070 --> 00:09:13,679 Sean Aylmer: Okay. One final question. Everything you've just said, and we 162 00:09:13,679 --> 00:09:17,490 Sean Aylmer: talked about different sectors and the outlook for insolvencies and 163 00:09:17,490 --> 00:09:21,870 Sean Aylmer: things like that. Do you think Australian businesses in 2023 post-COVID, 164 00:09:22,890 --> 00:09:27,149 Sean Aylmer: post everything we've been through, are better at managing... or 165 00:09:27,150 --> 00:09:32,760 Sean Aylmer: managing risk, I suppose, are better at operating their business? 166 00:09:33,839 --> 00:09:37,230 Patrick Coghlan: Yeah. I would say yes. We were sort of fortunate 167 00:09:37,320 --> 00:09:40,530 Patrick Coghlan: as a country, as an economy to enjoy, I don't know, 168 00:09:40,530 --> 00:09:44,429 Patrick Coghlan: what was it, a 10 plus year no recession economy. 169 00:09:44,429 --> 00:09:49,949 Patrick Coghlan: So not to say that business owners got lucky or lazy, 170 00:09:50,160 --> 00:09:55,199 Patrick Coghlan: but they really hadn't had to experience a downturn. And I 171 00:09:55,199 --> 00:09:59,940 Patrick Coghlan: think COVID forced everyone to ensure that they, one, were prepared 172 00:09:59,940 --> 00:10:03,750 Patrick Coghlan: for that and could operate, and two, it's ultimately set 173 00:10:03,750 --> 00:10:06,749 Patrick Coghlan: them up. So yeah, I think we are in a 174 00:10:06,750 --> 00:10:09,150 Patrick Coghlan: better position than we were pre-COVID and I think we're 175 00:10:09,150 --> 00:10:12,569 Patrick Coghlan: more aware of how to deal with fast moving changes 176 00:10:12,869 --> 00:10:13,559 Patrick Coghlan: as they come at us. 177 00:10:14,250 --> 00:10:16,170 Sean Aylmer: Patrick, thank you for talking to Fear and Greed. 178 00:10:16,800 --> 00:10:18,180 Patrick Coghlan: Great to be back. Thanks guys. 179 00:10:18,720 --> 00:10:22,020 Sean Aylmer: That's Patrick Coghlan, CEO of CreditorWatch. This is the Fear and 180 00:10:22,020 --> 00:10:24,240 Sean Aylmer: Greed Daily Interview. Join us every morning for the full 181 00:10:24,240 --> 00:10:27,299 Sean Aylmer: episode of Fear and Greed, Australia's most popular business podcast. 182 00:10:27,299 --> 00:10:29,189 Sean Aylmer: I'm Sean Aylmer. Have a great day.